Minimum Wage Increase Incentives
Posted September 30th, 2007 by ybo
Smart moves for the season
News commentators and politicians have had plenty of spirited debate over a new bill, signed in May by President Bush, that gradually raises the federal minimum wage from $5.15 to $7.25 an hour over the next two years.
But the new federal-wage increase—the first in 10 years—may not have as much financial jolt as you might think. First, the new law might not even apply to your business—check with your tax consultant. Second, to help offset the impact of increased wages, Congress approved $4.8 billion in tax breaks for small businesses through the Small Business and Work Opportunity Act of 2007. The following minimum-wage incentives were included in the Act. Learn how you can make the most of them:
- Work Opportunity Tax Credit. This tax credit, extended through 2011, benefits employers who hire public-assistance recipients, high-risk youth, and other disadvantaged workers. Businesses can take a credit for 40 percent of the first $6,000 in wages paid to a new employee in a qualifying group.
- Section 179 Deductions. Thanks to this rule, small businesses can continue to expense equipment and property at an increased rate through 2010. Businesses now can expense as much as $125,000 for equipment and other qualifying property rather than deducting the cost through depreciation—saving you time and money. The phaseout on the total size of a business’s equipment expenditure also increases from $450,000 to $500,000. Be sure to plan your purchases wisely as the deductible limit decreases in 2010.
- Tip Credit. The restaurant industry will receive approximately $1 billion of the $4.8 billion allotted for tax breaks. Restaurants with tipped employees can continue to receive a business tax credit for taxes they pay on tip income that exceeds the minimum wage.
The following three provisions were not included in the final bill. One expires at the end of the year, but there is hope that it will be extended, since these provisions are all beneficial for small businesses, says Bill Rys, tax counsel for the National Federation of Independent Business. Track the progress of these incentives:
- Expanded Eligibility for the Cash Method of Accounting. Small businesses with less than $10,000 in annual gross receipts would be eligible to perform the cash method of accounting rather than the more time-consuming accrual method. In the past, a business could only use the cash method if its earnings were less than $5,000.
- Fifteen-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Qualified Restaurant Improvements and New Restaurants. This provision would buy you more time—the current 15-year schedule for recovering office space improvement costs if you lease and occupy a space in an office building would be extended through March 31, 2008. (The benefit is set to expire at the end of 2007.) If you own a restaurant, you could recover similar costs if 50 percent of the building is used for meal prep and consumption.
- Fifteen-Year Straight-Line Cost Recovery for Qualified Retail Improvement Property. This incentive would extend accelerated depreciation. If you sell goods to the general public in a building that has been in use for more than three years, the time in which you can begin the 15-year cost recovery period for property improvement costs to the building’s interior would be extended through March 31, 2008.
In addition to taking advantage of these tax credits, be sure to purchase an updated All-in-One poster from the Federal Wage and Labor Law Institute and post it where all employees can view it. This poster contains the mandatory compliance laws for your state and is required by the Department of Labor. To order, visit http://www.fwlli.com/index.cfm.
Also, check with your tax consultant for more specific information on each of these credits that may apply to your business.
This article is not intended, and should not be used, as legal advice.
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