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[Webinar] Don’t Leave Money on the Table: What You Need to Know and Do NOW with Credits and Incentives


Listen to Kerstin Nemec, Vice President of Business Incentives for ADP’s Added Value Services division, and key members of her team as they share their deep knowledge and insights on the latest and greatest with tax credits and incentives. Because so many of the current regulatory changes relating to tax credits and incentives are highly time-sensitive, this session may be critical in helping you take full advantage of all the various opportunities available to you.

Guest speakers:

  • Charles Asensio, VP Government Affairs, ADP
  • Paul VanHuysen, Director of Tax, ADP
  • LaRae Pieroni, Senior Director of Tax, ADP
  • Evan Migdail, Partner, DLA Piper

Specific areas of focus will include:

  • Federal Hiring Credits: What will happen in 2014 and what should you being doing now?
  • Hire Act: There is still time. Claim your credits before the window closes.
  • California Legislative Changes: What you need to do before the program changes and how to prepare for the future

nemecKerstin Nemec
Vice President of Business Incentives for ADP’s
Added Value Services division

Kerstin Nemec is Vice President of Business Incentives for ADP’s Added Value Services division and is responsible for overseeing tax credit teams across the country, as well as the National Tax Benefit Exchange and Economic Development Services teams. She is also responsible for leading Fortune 500 client engagements and negotiating economic incentive packages on behalf of those clients. Kerstin brings a strong, comprehensive background in traditional multi-state tax compliance, technical research and consulting to ADP with more than 12 years of experience in the Big 4 public accounting environment working in several related areas of state and local taxation specifically – including negotiating economic development incentives, property tax, tax credit compliance delivery and real estate services.

Guest Speakers:

Charles Asensio
VP Government Affairs, ADP
Charles Asensio has over 25 years of experience working with tax credit-based employment and training initiatives. He has served as a subject matter expert before members of the U.S. Senate Finance & House Ways & Means for more than twenty years, is a member of the round table that designed the Work Opportunity Tax Credit (WOTC), is a Board Member of the National Employment Opportunity Network, and is an Employment & Training Development Specialist with USDOL, ETA Region III & IV.

Paul VanHuysen
Director of Tax, ADP
Paul VanHuysen has been in the tax credit and incentives industry for over 13 years and specializes in applying technology in the capture, tracking, and calculation of Federal and State Tax Credit opportunities. Prior to ADP, Paul spent twelve years at Ernst & Young, LLP building out numerous tax credit and incentive business lines. Throughout his career, he has worked on and led tax consulting projects for over 50 of the Fortune 500 companies.

pieroniLaRae Pieroni
Senior Director of Tax, ADP
LaRae Pieroni manages a multi-million dollar practice focusing on the delivery of credit and incentive packages, utilization maximization studies, audit support and legislative/government affairs for clients with California operations. She has over 16 years of National Account experience in the business incentives and tax credit consulting environment and is a published writer, featured speaker and currently sits on the Board of Directors for California Association of Enterprise Zones in Action (CAEZ) and California Employers Opportunity Network (CEON).

evan migdail_DLAPiper_blog

Evan Migdail
Partner, DLA Piper
Evan Migdail represents corporations, associations, tax-exempt organizations, and governments before Congress, the Administration, and federal agencies with a concentration on tax, trade, government ethics, and matters affecting international law and commerce. In private practice for almost 20 years, Mr. Migdail previously served as an assistant to a United States senator, assistant legislative director for a national trade association, and as an attorney/advisor to an independent federal government agency. Mr. Migdail’s experience in tax law is both in the legislative area and in substantive representation of clients in controversies before the Internal Revenue Service, and at the highest policymaking levels at the Department of the Treasury.

Tax Credits and Incentives Can Help Lower Your Effective Tax Rate

Learn more about how you could leverage available tax credits and incentives with help from ADP, or watch the overview video below.

Hello, and welcome to today’s Webinar – “Don’t Leave Money on the Table – What you Need to Know and Do Now with Credits and Incentives.” My name is Kira Lee Lakin, Director of Marketing at ADP. First, let’s review just a few housekeeping items. This is one of a number of complementary Webinars that ADP offers to tax, finance, and HR professionals during the year. Today’s Webinar will last for 60 minutes, ending at 2:00 Eastern Time. I’d also like to mention that today’s Webinar is being recorded, and you’re currently in a listen-only mode. If you’d like to download a PDF of today’s slides, please, go to the upper, left-hand corner of your screen, and click on File. Then, from the drop-downs, select Transfer. Please, select a file, and click on the Download button. If you have any problems downloading the presentation, please, just send a message into the chat window for assistance.
Today’s Webinar is eligible for CPE or RCH credits for those who qualify, and certificates will be mailed to you via e-mail within 30 days of today’s session. During the presentation, we will ask for your feedback via a few polling questions, which will appear on the right-hand side of your screen once the poll has been opened. Please, click on the radio button that corresponds to your answer to place your vote.

The last ten minutes of today’s program have been reserved for Q&A. If you’d like to ask a question at any time during the Webinar, simply type your question into the Q&A panel in the lower, right-hand corner of your screen, and then click on the Send button to send your question into our queue. We’ll do our best to get to all questions before the end of the program.

There will also be a brief survey at the end of today’s Webinar, and, please, remember that, to qualify for credit, every participant must be logged in on their own workstation, answer all polling questions, and complete the survey. So let’s get started. I see that we’ve got responses from folks who will need the credit, so thanks so much for letting us know.
Here are just a few key facts about ADP. We have over 600,000 clients worldwide, and we pay one out of every six employees in the U.S., which is over 33 million around the world. We’re also one of just four AAA-rated U.S. companies by S&P and Moody’s.

With that, I’d like to introduce our speakers. Today’s Webinar is hosted by Kerstin Nemec, Vice President of Business Incentives here at ADP. Kerstin is responsible for overseeing tax credit teams across the country, as well as the national tax benefit exchange, and economic development services team.
She’s joined by this exceptional lineup of guest speakers. We have Evan Migdail, Partner at DLA Piper, as well as Charles Asensio, Paul VanHuysen, and LaRae Pieroni, all of ADP.

Today’s presentation will start with an introduction by Kerstin. Following that, Charles and Evan will be covering federal hiring credits, including the outlook for 2014 and what you should be doing now. Paul will then take us through The HIRE Act, and LaRae will cover legislative changes in the state of California.
So, Kerstin, I’ll now turn it over to you.

Kerstin Nemec:

All right. Thank you, Kira. And welcome, everybody. We appreciate you joining us today.
We were– There’s so much going on in the credits and incentives world right now, and it can be overwhelming and confusing, to say the least. So what we wanted to do for you all today was narrow it down to the most important things that you need to know now to take advantage of for your companies. And what made the cut were things that had high impact– that we see have high impact to tax groups, as well as items that have had volatile, legislative issues and changes, as well as things with looming deadlines.
So, to start, we’re going to talk about what’s going on in Washington, D.C. with the federal hiring credits. Many of you know that a lot of the hiring credits were extended through the end of this year. But, really, what’s going to happen next year? So Charles and Evan are going to discuss that.
The next thing is The HIRE Act, which many of you may be thinking – Well, wasn’t that back in 2010? And why is that important for me right now? And the reason that that’s important– There was this last chance to take advantage of those credits and benefits, as long as you get your filing in by the 4/15 deadlines of next year.
And then, finally, for those of you in California or those of you that have staying close to the news in California, California has had the single largest and most impactful change in credit incentives legislation this year at the state level. And LaRae’s going to cover, basically, what happened to the program, what you need to be doing now to take advantage of the prior program, and then what’s on the horizon with the new program.
So, with that, Charles, Evan, you want to tell us what’s going on in D.C.?

Charles Asensio:

Next slide, please. Thank you, Kerstin. I’d like to thank all the attendees for participating on this Webinar.
I am the Vice President of Government Affairs with ADP and a member of the government affairs team. We are chartered to track, monitor, and assess legislation that impacts ADP products and services at all levels of government – federal, state, and local.
Joining me is Evan Migdail, Partner with DLA Piper, the largest law firm in the world. I’ve had the privilege to walk the corridors of Congress with Evan for over 25 years. He also has been instrumental to craft draft legislation for several federal hiring incentives, including one we’ll discuss today, which is The HIRE Act.

Next slide, please. Thank you. Since January of this year, the chairman of the tax writing committee, Senator Max Baucus from Montana for the Senate Finance Committee, and Congressman Dave Camp from Michigan in the Fourth District for the Ways and Means, have conducted comprehensive exercises to assess the tax code in anticipation of tax reform to lower the tax rates for individuals and businesses.

One of the areas under review were the hundreds of tax provisions in the code and are organized into six categories illustrated on this slide. A sample of each is also provided for your reference.

Of importance to us is the 50 or so business extenders– in particular, the federal hiring incentives, work opportunity tax credit, federal empowerment zones, and the (unintelligible) employment tax credit. All of these hiring incentives are scheduled to expire after 12/31/2013.

The likelihood of completing tax reform legislation before December 31 is, at best, slim. Our attention perhaps is better suited on an extender package that extends the expiring provisions for 12 months and, thus, avoiding a hiatus. Evan will elaborate a little bit more on the state of the movement of this legislation in the next presentation.
Next slide, please. In light of the possible hiatus, what should employers do now? First and foremost, we strongly suggest that you communicate with your worksite managers and review your program participation procedures. Inform them that a brief hiatus may occur, since the remaining number of days in the Congressional calendar is limited. Inform them that Congress truly values these incentives and has always extended them retroactively since program inception in 1997.
Reinforce the conclusions by labor economist, Professor Peter Cappellis from the Wharton School of Business with the University of Pennsylvania. In his assessment of the value of WOTC, he determined that the program saves the U.S. Treasury approximately 18 times the costs scored by the Joint Committee of Taxation. This analysis will be available to you, so, please, indicate this, and we will send a copy to you.

And, last but not least, request nothing less than 100% participation by new hires. Evan?

Evan Migdail:

Yes. Good afternoon. My name is Evan Migdail, and I’m a Partner at DLA Piper. And I both work in our tax group and our legislative group. So I am, to a great extent, a tax lobbyist and appreciate very much Charles’ introduction and the long history we have of working together on these programs.
There have been some developments just within the last 24 hours that I think are an opening for what we’re trying to accomplish in terms of extending the federal hiring credits. They are essentially that, with a budget conference underway, mandated by the temporary budget agreement that was reached last week– sorry– last month, the leadership of both the House and Senate would rather tax reform not move forward until early next year. And so we expect later today that Chairman Camp is likely to announce that he is not going to release his tax reform bill until January. And, on the Senate side, Senator Baucus is likely also to hold up on releasing parts of his bill, which he was going to release in the form of working papers.
Because of that, we have really spent about eight months this year– eight or nine months being very respectful of the Chairman and not talking about the tax extenders in any context other than tax reform. And the reason for doing that was we realized tax reform was their number-one priority for the year and that we’d have a much better case talking about making WOTC or programs like that permanent as part of tax reform than talking about them separately, which they would have seen as undermining the overall goal of tax reform.
But the situation now is very clear. The provisions that will expire will expire long before tax reform is enacted. Tax reform may or may not happen in 2014 either. But, clearly, December 31, 2013, the expiration date, is coming first. So now there is a new mood in Washington, and the new mood is favorable to talking about doing something about the expiring provisions by themselves rather than simply waiting for tax reform. And that’s a very important opening for us. It allows a conversation that we could not have any time earlier this year.
Now, let me talk to you a minute about WOTC. As Charles said, the Cappellis study only reinforces what are already very strong feelings in favor of WOTC on both sides of the political aisle. This has always been the case with respect to WOTC. It is a very popular program. You can cite numbers showing people who were hired as a result of WOTC in every state and every Congressional district in the United States. And the Cappellis study appeals very heavily to republicans, who want very badly for the government to spend less. And, in the case of WOTC, a very small hiring incentive– I think the average incentive costs the government about $1,100– it saves the government as much as $18,000. It is an extraordinary program, and it has a great deal of support.
What we need right now is to be able to convince the Congress that, with tax reform not happening any time soon, they need to bear down and deal with the traditional tax issues that are usually on the agenda. And, in our case, it is the expiring provisions, and it is also, in the case of Medicare– it’s something known as the doc fix, which is also going to expire at the end of the year and which WOTC and the doc fix may move together.
The thing that we would ask you to do is– members of Congress listen to us here in Washington, or, at least, we hope they do. But there’s nobody they care more of– more for than their constituents, whether it’s individuals or companies and they’re states or Congressional districts. That’s more important to members of Congress than anything else. After all, the people back home are the voters, and they make a very big difference. And we have an election in November of next year for all of the House of Representatives and 34 members of the United States Senate. So we ask you. Identify your members of Congress and your Senators, and, in any way that you can, whether you see them at home, whether you do it by e-mails, or whether you just call their offices– we urge you to do that and to tell them that it is very important that Congress, as soon as possible, preferably, before the end of this calendar year, get together to extend the expiring provisions. Tell them it makes a big difference for your company and that you’re located in their state or Congressional district, and it’s going to have a real impact for them and for the people back home.
The other thing I would mention, and, just to reinforce what Charles said– WOTC has been renewed every time it has expired since it was first enacted in 1996, and it’s always been renewed retroactively. That is very likely to be what’s going to happen here again. The only thing I can’t give you with any kind of a guarantee is when the renewal’s going to happen. I would tell you there is a omnibus spending bill to fund the federal government that must be enacted by January 15 also as part of the budget agreement that was agreed to last month. And we have Senators, both democratic and republican, on the finance committee who are going to try very hard to get a WOTC extension onto that bill.
But everything you can do to tell your members of Congress how important WOTC is will help to push them in that direction.

So, I look forward to any questions you may have, but I want to leave you with the sense that we are optimistic about a WOTC extension. We’re all working very hard together to make it happen as soon as possible.
So thank you, and we move on to the next slide.
Kira Lee Lakin: All right. Thank you, Evan. And, again, for those of you that have questions, Evan is a great resource and very insightful. So go ahead and enter your question in the Q&A section of your Webinar screen. And, at the end of the Webinar, we can have Evan answer the question.
All right. We’re at polling question number one. And, throughout this Webinar, we are going to have questions. It’s important that, if you are attending this Webinar to get CPE or RCH credit, that you answer these questions. It’s required in order to get credit.
So the first question. How would you characterize your company’s engagement in a WOTC screening and credit program?
So what we’re asking you is here is, if you’re engaged in a WOTC program and how you’re engaged in it. Is it a mail-based system, phone-based system, Web-based, Web-based with an integrated applicant tracking system? You’re engaged, but you’re not sure what kind of system you use. Or you’re not engaged at all.
So, please, take a moment to answer that question.
And, really, what this is going to tell us is– The technology in the WOTC space just changed dramatically over the years. And, really, depending on the type of system you use can dictate the kind of results you get on the backend. So this is something that we like to track in the market to see how companies are changing their technology and changing their processes in order to take advantage of tax credits.
All right. Next question, please. All right. So we’re throwing in a few kind of basic informational questions to gather information. The second types of questions that you’re going to see throughout the Webinar are basically test questions to see if you’re paying attention. So let’s see who paid attention.
How many federal empowerment zones exist in the United States today?
Unidentified Participant: And that poll is now open in the lower, right-hand corner of your screen. So go ahead and vote. Please, click on the radio button, and then click on the Submit button. And let’s leave this one up for a little longer if we could.
Kira Lee Lakin: Okay. No problem. And so, while we’re waiting for people to answer this polling question, one thing– and, Evan, you may want to comment– there’s a certain number of zones now, but Congress is also considering adding back in the Washington, D.C. zone that was eliminated. I want to say it was a year or two ago. And the constituents there have been trying to get that zone reactivated.
Evan, did you have anything else you want to add on the D.C. zone?
Evan Migdail:

No, just to say that what happened last time with the D.C. zone was that it normally would have been asked for by the House of Representatives, but what happened was that the House of Representatives didn’t get its act together to get an extender bill done. And the only extender bill came from the Senate. So that’s why it got dropped. The delegate from the District of Columbia, Eleanor Holmes Norton, is very actively trying to get it added back. So it has a chance to get back into whatever package they do either in December or early next year.

Kira Lee Lakin:

All right. Thank you.
I’m waiting. Are those poll results going to show up for the group?
Unidentified Participant: Yeah. I just closed the poll. It looks like the results will tally up in about five more seconds.

Kira Lee Lakin: Okay. Great.
Unidentified Participant:

Great. The poll is now closed, and the results are shown in the lower right.
Kerstin Nemec:

All right. Our answers were all over the place.
So the correct answer would be C– that there’s 40 zones right now. And, if D.C. is reenacted and all the other zones are upheld, we would be up to 41 zones going forward.
All right. Thank you.
I would now like to introduce Paul VanHuysen. He is a Director of Tax with ADP. He’s been in the credit and incentives business for over 13 years. And his specialty is technology and how to apply technology to tax credit solutions. Paul is joining us today to talk about The HIRE Act and how companies can take advantage of The HIRE Act in the next six months. Paul?
Paul VanHuysen:

Thank you, Kerstin. And, if we could, go to the next slide.
Really, what I’m going to talk to you all about today is looking at The HIRE Act but looking at capturing The HIRE Act retroactively.
So, just as a brief overview, starting at first, The HIRE Act was basically created– it’s The Hiring Incentives to Restore Employment Act of 2010. It’s really targeted at hiring and retaining individuals who were previously unemployed and that were hired with the economy between February 4, 2010 and 12/31/2010.
So, next, if we look at what a qualified employee is, a qualified employee is really defined as an individual who was unemployed or, in the prior– unemployed for the prior 60 days or worked less than 40 hours during that period.
And so, then, if we move forward, really, what you need to claim both of these benefits, to remind people– it’s really the IRS created a form called the W-11 form. And it’s really an attestation statement. An individual would need to attest that they were unemployed in the prior 60 days in order to claim the benefits associated with the program.
There was a specific exclusion or a specific consideration. An employer needs to make an employee-by-employee election if an individual is duly qualified for the WOTC program and The HIRE Act– the employer needs to choose whether to take the payroll tax exemption on an individual or the WOTC credit associated with that individual. Now, they are eligible to claim the retention credit associated with The HIRE Act regardless of what election they make.
If we move on to the next slide, if we dig a little deeper, we look into the first benefit related to The HIRE Act is a 2010 payroll tax exemption, really, for wages paid between March 19, which was the day after the legislation was signed into law by President Obama, through 12/31/2010. The employer gets a 6.2% exemption of the social security tax on wages paid between those– during that period up to the social security wage cap for the year. Originally, the benefit would have been claimed on a 941 filings, the quarterly filings during 2010 with a maximum value of $6,600 per employee.
And then the next benefit related to The HIRE Act was an income tax benefit. Employers that retained qualified individuals for 52 weeks and paid those individuals wages that were at least 80%– basically, the second 26-weeks wages during that retention period had to be at least 80% of the wages paid during the first 26 weeks. Most employers ended up claiming this on their 2011 tax return.
And so, again, we looked at what a qualified employee was on the previous slide. Really, the most important thing to highlight here is that bottom bullet. Really, the eligibility rate for The HIRE Act across industries, looking at a composite of industries, was approximately 50%. And that’s significantly higher than what you see with other targeted hiring programs. So, as we move into looking at this benefit retroactively, that’s kind of why that higher eligibility rate is why this is (technical difficulties) viable idea for many companies.
So, if we move on to the next slide, let’s talk about why a retroactive look-back really makes sense right now. In talking to many companies in the market, we saw that a lot of companies actually haven’t taken The HIRE Act in 2010 at all. But then, even more companies really didn’t maximize the value that they could have received for The HIRE Act. A lot of that had to do with the fact that the law was signed into law midyear, and then the IRS issued regs almost two months later associated with that.
And then, putting into a place, a process to identify the eligible employees and document them– that really created a time lag before employers could get a viable screening and identification process up and running. And, additionally, many clients that we’re talking to now have identified that they used a manual process, and tracking down paper-based W-11 became quite difficult during 2010.
And so, then, if we also look down in the bottom section, why does it make sense now, or why does an employer need to take action right now? And, really, what’s going on is the three-year statute of limitations for the 2010 payroll tax filings on those 941s– the date that employers need to be thinking about is 4/15/2014. After that date, you can no longer amend the quarterly filings.
Now, I talk to many employers who are concerned and think that the opportunity’s already run on the quarters that have already passed because it’s been three years since they made their filing on that quarterly basis. Really, all of the quarterly filings– the statute of limitations or period of limitations defined by the IRS– really, that does all expire on that 4/15/2014 date.
Additionally, it’s important, too, that just to consider, if you haven’t maximized the benefit– but, just as time moves forward, your 2010 hires are terminating every day.
Then, if we move on to the next, here, we’re going to look at what would a process be for capturing these benefits retroactively? And the first step’s really determining what your– which 2010 hires that are still currently employed with your company by looking at either an HR feed or some sort of current payroll feed. Additionally, you can pare down that target population by looking at individuals that you’d previously claimed HIRE on, had you claimed HIRE Act previously– you can remove those to assure no double dipping.
The next step is to screen that target population. And it’s usually a pretty short survey. I’m looking at about 30 seconds to ask them that qualifying question associated with The HIRE Act. And then, at that same point, you’re identifying eligibility, you want to trigger some sort of process for electronically capturing that W-11 attestation with an electronic signature. And electronically signing that form right there really allows you to document and establish eligibility all in one step.
And then, as soon as you finish that screening and attestation period, really, your next step is to calculate the credit and get it claimed on your 941– via 941X and then get it on your (technical difficulties).
If we move on to the next slide, I just wanted to put out some sample– or walk you through some sample value propositions.
The first case example that we’re going to look at is employers with high hiring volume and low retention. Often times, people don’t think they have a significant base of employees that will still be working from 2010. This is a pretty representative case. So, if I– I’m just walking you through the logic– if I had 20,000 hires during 2010 and about 20% of those are still employed and I didn’t take The HIRE Act at all in 2010, that gives me about a 4,000-person targeted screening base. Now I’m going to assume about a 75% screening compliance rate with that, which means I’ll screen about 3,000.
Now this is where the higher eligibility related to The HIRE Act comes into play. If you have a high hiring volume type of business, you’re going to see, typically, a higher HIRE Act eligibility rate. And, in this case, I’ve used about a 55% eligibility rate. And so, at an average benefit payroll tax exemption of $500 per person, that could trigger about an $825,000 opportunity for an employer.
And so, then, as we take those qualified individuals and run them into the employee retention credit valuation, you’re going to see that about 90% of those individuals that qualified for the payroll tax exemption are going to qualify right now. And that’s unique to looking at this benefit retroactively because most of the individuals that we’d be targeting are individuals that are not working three years after the fact. But these are the individuals that you did hire and retain for at least that 52-week period. And so you’re going to have a high qualification rate, which really leads to a high average value per individual.
And so, in this case, we get down to about a $1.4-million opportunity. So, for this sample case employee, this is about a $2.2-million opportunity on a relatively small, targeted population.
So, if we then move on to the next slide, it’s just another similar case. I’m not going to go through it as in depth. But, in this case, we have a company that has lower hiring volume but a higher retention rate. Really, the differences that you’ll see here is that that target population, although you hired less individuals during 2010, the amount that are still currently working for you is going to be higher. So we’ve applied a 60% kind of retention rate or targeted population rate. You may see a lower HIRE Act eligibility rate, in this case, we’ve used about a 45%, but, typically, industries that look like this also pay higher wages that lead to that higher retention. And that’s going to lead to a higher benefit per individual. And that’s where we’ve applied an $1.100 per qualified individual, which really leads you to about a $600,000 opportunity for the payroll tax exemption value.
And then, if we go over to the employee retention credit, a similar 90% retained, meaning, basically, you retain them 52 weeks and they met the other parameters and other tests of the employee retention to be a retained employee, really, you’re going to get probably about 90% of those qualified individuals, which leads to about another $546,000 in the income tax credit.
So, for this particular employer, although they have less targeted individuals still remaining, you still have about a $1.2-million opportunity sitting out there.
And so, if we move on to the next, the next slide’s really about how do I claim these benefits retroactively? I want to spend some time here.
So, really, employers file these 941Xs on a quarterly basis. There would be three filings per FEIN – one for the second quarter, where you’re claiming the first and second quarters, and then a filing for the third quarter and fourth quarter. And you’d need to amend those returns on that quarterly basis. It’s not just a one-time amendment.
Again, these 941Xs need to be filed prior to that 4/15/2014 when the statute of limitations runs out.
And, as a result of claiming these amendments on the 941Xs, it triggers the need to create an employee-by-employee W-2c that needs to be filed for every person that you’re now claiming for that benefit.
And, as a result of creating that W-2c, you also need to file a W-3c with the social security administration as well, just to make sure that you’ve completed all of that paperwork.
As mentioned before, the employer retention credit– that’s claimed via the 5884-B, and it flows through the IRS Form 3800, or the General Business Credit. Usually– I said it appears on the 2011 tax return. For employers that have more of– are fiscal year filers, a portion of that benefit may appear on the 2010 tax return, the remaining portion on the 2011 tax return.
So, you can see across both benefits with the $6,600 for the payroll tax exemption and the $1,000 employer retention credit, you’re looking at a maximum value of about $7,600 per employee.
And so, with that, I’ll kick it back over to Kerstin with the next polling question.
Kerstin Nemec:

All right. Thank you, Paul.
How would you describe your organization’s performance in taking advantage of The HIRE Act incentives in 2010?
A – is you took advantage of the incentives and maximized the benefit;
B – you took advantage of it, but you’re not sure you maximized it;
C – you only captured a portion of what was available;
D – you’re unsure of your results; and
E – you did not take advantage of it at all.
And so, Paul, while people are answering this question, maybe you could tell the group– if someone’s unsure, where would they even start to like figure out if their company took advantage of The HIRE Act?
Paul VanHuysen: Well, the best way to figure out if your company took advantage of The Hiring Act (ph) is to look at your payroll tax filings for 2010 on that quarterly basis. And look through and review those 941s to see if any benefit was claimed or if any benefit was claimed on subsequent 941Xs for the– related to The HIRE Act, because, really, what you’re talking about to claim that benefit is a 6.2% exemption. And that would appear as one of the line items on the 941 or a 941X.
Kerstin Nemec: All right. Great. All right. Well, let’s close that polling question. All right.
And, again, here’s the second polling question, and we’re testing to see if you all are paying attention.
So, how is a qualified individual for The HIRE Act defined?
Is it somebody who was unemployed and worked less than 40 hours in the last 30 days, the last 60 days, the last 120-day period prior to their start date, or none of the above?
Kira Lee Lakin: This might be a hard one, Kerstin.
Kerstin Nemec: It might be. People might need coffee.
And so, Paul, while people are answering this, is there– For the folks on the line, is there a way, once they dig and find out whether they took HIRE or not where they can do a quick, back-of-the-envelope to assess whether it’s worth them opening this up and going after the benefit, or is that something that’s more complicated to figure out?
Paul VanHuysen: You can do the back-of-the-envelope calculation. I can say it becomes a bit more complex in the situation for companies that, if you actually took it, looking at what that opportunity is becomes a little more complicated because you have to look almost person by person at that point to restrict and make sure you’re not double counting individuals in both populations – the targeted population that you have remaining and the population that you already claimed on in 2010.
It’s a little bit easier if you have– if it’s a greenfield project, where nothing was claimed in 2010. That 50% eligibility rate holds true pretty well across industries.
Kerstin Nemec: Okay. All right. And then, if anyone has any questions, I know you keep industry statistics on what certain benchmarks would be by industry, and they certainly could reach out to you and ask if they needed some benchmarks.
Paul VanHuysen: Oh, that’s definitely right.
Kerstin Nemec: Right.
So let’s close the polling question.
Unidentified Participant: Okay. The polls are now closed.
Kerstin Nemec: Okay. Great. So I’m waiting for the results here.
But, while we’re waiting, I will tell you all the correct answer would be B, individuals who were unemployed or worked less than 40 hours in the 60-day period prior to their start date.
So we had a good percentage that got that right. So thank you for paying attention. We appreciate it.
Kira Lee Lakin: I’m very impressed.
Kerstin Nemec: So, now, on to our final subject of the day, California legislative changes. LaRae Pieroni is a Senior Director of Tax with ADP. She is also our west practice leader. She has 16 years in the credits and incentives business. She sits on the board of directors for the California Association of Enterprise Zones, as well as the California Employers’ Opportunities Network. And she’s also very active with the Franchise Tax Board in California Go Biz in helping craft the new regulations.
So, with that, LaRae, you want to tell us what’s going in California?
LaRae Pieroni: Perfect. Thanks, Kerstin, and thanks, everybody, for joining us today.
So, as I pick up the tail of the presentation today and start talking about California, for those of you who know and those of you are listening in, there were significant changes– statutory revisions to the state level incentives available at the state or in the state in California.
The Enterprise Zone Program had been around for some 15 years out in the state. And, in the last few years, it became more and more under debate in terms of how to improve the structure and how to better meet the needs of state.
And so, this year, those changes were enacted late in the summer under a couple of bills. So we have some bills that were enacted that really create the structure for the new credit scheme in California and, then, give us some guidance about how the old credit scheme will tail out.
So, Assembly Bill 93 and Senate Bill 90 are the two bills that dealt with the structure of the end of the Enterprise Zone Program and the beginning of the new structure for California. They also dealt with a couple of significant changes for the program with respect to the end date and, then, the carry-forward period.
So, previously, with the Enterprise Zone Program, there was an unlimited carry-forward for using credits generated. And, with these bills, we now have a limit on that carry-forward, and that limit will be ten years going forward. And that becomes important as we move forward here and talk about what it is that employers need to do and need to look at to discern what their next move should be.
Then, additionally, late in the summer– So, after those changes were enacted, we got busy working with the governor’s office and a number of the stakeholders to determine a few of the key things that taxpayers would need to understand about how to take advantage of the program at the end, and that was accomplished via Assembly Bill 106. And that defined the period for which you could seek a voucher on those eligible employees hired under the old program.
So, some dates that became important in this were employees hired through the end of this year– so December 31 of 2013– are eligible for the old California Enterprise Zone hiring credit. And they will have one year from then to obtain a voucher for those hires. So two dates there. The end of 2013 is the hiring activity, and then you’ll have one more year after that to submit all the appropriate paperwork and documentation to secure the voucher to take that credit.
They need to– Employers need to have those vouchers returned to them from the zone by January 1 of 2015. And you will then still remain eligible to take the five-year credit as long as that employee is still employed after that point in time.
So a couple of those bills were important in understanding the change and, then, both what the future timeline looked like.
So, moving on to the next slide, what we’ll see in addition to that became the action after those bills have been focused on, really, interpreting what the bills mean and applying that to the zone level to ensure that the vouchering activity and the infrastructure for those vouchers are in place. And so that’s a task that continues to this day.
And the importance there is that we have a number of zones. There are 42 zones out in California. And, if you’re a multijurisdictional employer and you have operations in multiple zones, what you know is you need to submit a voucher application to the zone that your facility is in. So you would need to know what each and every one of those zones was planning on doing with respect to keeping their infrastructure and their vouchering agents in place. And that became more highlighted in the last few months, as we had various zones releasing statements about their intentions for timelines to voucher; i.e., we had Los Angeles issue a notification indicating that they would stop accepting vouchers in June versus the end of the year.
So those are just some important things to keep in touch with and that we’re working very diligently on to make sure that we have a clear understanding about what all the zones are doing and work to keep that infrastructure in place through the end.
What that means to an employer is that you need to move quickly. Despite the fact that the government and that the governor has stated via Assembly Bill 106 that they intend to give employers a year to get their vouchers, there are some various things going on at the zone level that you’ll want to make sure that you’re moving quickly, paying attention to, and getting your paperwork in.
What we’re telling folks is to count on three months for those zones to turn around the vouchering paperwork. So that would mean, at a minimum– or at a maximum, making sure that you’ve gotten your paperwork in by September of 2014; so, allowing three months to turn around with the idea– with it being clear that that could change.
HCD, Go Biz, the Franchise Tax Board, Board of Equalization have all been– have all had workshops that we’ve attended in the last four weeks, all speaking to these changes and focused on what their implementation procedures will be with respect to regulations for the new and then to follow through on the old. So those will continue through the next 60 days or so as these become more of a highlight at the state level.
If we go into the next slide, what we’ll talk about here is the process to review your credits. So, now that we understand that there’s an end to the old program and a new program about to kick up, that creates the opportunity for employers to stop and analyze what their current California carry-forward situation looks like and what their success rate has been under the old program.
So, from a process perspective, you’ll want to analyze and estimate what value there is in the current program, understand what your capacity is to utilize credits with the ten-year carry-forward in place. So, from a strategic perspective, most of our clients and employers are going to want to make sure that they’ve captured as much benefit as possible to maximize that opportunity over that ten-year carry-forward period. That would mean, then, also identifying and securing documentation to do that and then calculating that credit.
The credit, if you recall, is for employees– or, for those of you who are familiar– is for employees hired into one of those 42 geographically designated zones in California. They fall– The employee then must fall into a targeted hiring credit group. There are 14 different categories – things like ex-offender, veteran, long-term unemployed, et cetera, that are target groups that you would need to demonstrate eligibility for and then calculate the credit over a five-year period. If you retain that employee over those five years, that credit could have a maximum value of over $37,000 per employee, thus making it a very lucrative program and one very worth finding out how to maximize the benefit if that’s not been accomplished so far.
Onto the next slide, what we find a number of clients or a number of employers asking is: Why would it be that you could find additional benefits if you were to do this retroactive review?
So, onto the next slide, we’ll see the reasons that that’s true. What’s happened out in California over the year– California, with those 42 enterprise zones, has gone through a number of boundary changes in the last six years due to re-designation and various expansion potentials that each zone has. There have been over 100 changes in the last six years. Most– Some, if not most, have retroactive implications. The zone will apply for a boundary change. They’ll receive that designation change. That designation will go backward in time to the original date of designation in some cases. So it’s a very complicated structure of understanding the zone boundary changes. And it can be easy to miss some of that.
Additionally, the zone boundary maps that are published at the zone level, which are also then published in some cases on the Housing and Community Development, HCD’s, Website. Those are not always correct. So you need to have access to a GIS capability overlaid with the boundary guidelines to understand if your operation truly is in that zone to understand what, potentially, you have. And the idea of missing even one location can yield a substantial uptick in credit. So that’s one of the reasons why doing your review sometimes can yield significant results.
Additionally, just this year, despite the fact that they changed the program, they’ve added new targeted employment area, which is known as a TEA, which is the geographic element of where an employee lives to determine their eligibility. Those are still changing, and so those just changed again in July of 2013, some of which grew. If you weren’t aware of that as you were doing that initial review, that would be another opportunity that would be missed.
So the point being here there’s a lot of changes that occur at the state level zone by zone that make it very difficult to make sure that you’re up to speed on the latest.
On the documentation side, likewise, there are things that California has done over the years, one of which was to create a change in the eligible documentation. An example of that would be a W-4 became an allowable piece of documentation. But that was only made known via a management memo that was published by Housing and Community Development. So, again, if you were trying to do this program and didn’t know that or the vendor you’re working with wasn’t aware of that, that would be an opportunity to look at additional ways of capturing documentation to ensure a greater return.
There are various third-party agency release forms that are out there and available to get to other documentation to maximize credits under the not-so-frequently-used categories of eligibility that will also drive eligibility upwards to, in some cases, over 50% of your employees. We’ve seen eligibility rates over 50% when you’re using all of those techniques.
And then, lastly, the credit utilization analysis; so, wanting to make sure that you’ve really understood the apportionment calculations to maximize the benefit and make sure you’ve applied the credit correctly so that you understand what capacity you have left.
So those are some of the reasons why this sort of a review becomes valuable and, certainly, timely without the benefit of the program going forward.
So, next slide, we’ll jump into a quick comparison of the existing program and what California has in store with the new program. So, the existing program’s five-year credit– we talked about that– there’s no limitation on the type of industry eligible. There are 42 geographic zones across the state and 14 different target groups of eligibility for employees, including the WOTC category. There was a net interest deduction component for lending into zone businesses and then a sales and use tax credit component for those zone businesses.
With the new program, they have a hiring credit. So it’s broken down into three pools, if you will – a hiring credit, a discretionary pool, and a sales tax exemption.
So, quickly, on the hiring credit, there’s quite a few differences in there. The zones still exist. They’ll be adding some new low-income areas. They’ve not announced those yet, so that will be a future opportunity and one that will be geographically based. So we’ll be watching for that.
There are only four target groups to draw from. Those are veteran, ex-felon, long-term unemployed, and earned income tax credit recipients, including public assistance. So they’ve narrowed the target groups.
There’s a net new jobs requirement, fulltime employee requirement. And the calculation will be based off of wages over $12 an hour.
So some significant changes on the hiring credit side.
Some of the big news and the exciting pieces of what’s coming forward in California are in the discretionary pool and the California Compete section.
So I think we’ll go to the next slide so that we can look at some of that. I think those are some things that businesses have a number of questions about.
This is the general scheme for the amount of credits available. And this is credit– This is a discretionary pool that the governor’s office of economic development, Go Biz, will be overseeing and doling out funds for that we’re excited about getting in front of the department with. These are the basic allocations of credits that they’re expecting by state. And you’ll see up to 2017 and ’18, they’ll have $200 million available for allocation.
And I’d like to jump to the next slide because that’s where we really talk about the hiring credit. And does my business still qualify? And these are some of the differences that we discussed, which was the wages– I think the important thing to take away from this would be the higher-wage jobs, net new jobs, and fulltime equivalent.
There are some excluded industries, such as retail, food service, and temp agencies. So there are certain industry types that will no longer be qualifying for the hiring credit.
So those are some of the important things to understand about that new credit.
With respect to what to do next, I think that the things we’d want to leave you with would be, number one, maximize the old opportunity; number two, make sure you’re ready for the new credit opportunity; so, via screening for some of those new categories while the state is still working out their regulatory scheme; and, then, being in contact with ADP or Go Biz with respect to any sort of expansion plans you have.
Go Biz is very excited about working on that discretionary pool. And we’ve had a number of conversations with them about teeing up some of those opportunities. So, that is, if you have expansion or retention, growth-type, plans in California, what to do next would be to be in touch with Go Biz and ADP as we work through the details. Those departments or those agencies are working through regulations which will explain better what to expect. But, in the meantime, they want that outreach to begin.
So I think we’ll kick it over to those last polling questions as we run out of time here.
Kerstin Nemec: Right. Yeah. We’re trying to do this pretty quick.
So polling question number 5. Has your company done an analysis of credit optimization after the California changes were announced?
So, yes, and we need more credits;
Yes, we looked at it, but we weren’t certain of what steps to take;
Yes, we have too much credit carry-forward; and
D: No, we haven’t done an analysis yet.

So, LaRae, while folks are answering the polling question, how is a company supposed to know whether they’re in a zone or not?
LaRae Pieroni: Yeah. I think the Housing and Community Development has a Website with some of the geographic boundaries, so that would be one spot to check first. And then you’ll need access to a GIS team. ADP is happy to help with that, obviously, for those instances where they’re not published.
So, a little bit challenging, but there are some public sources out there too.
Kerstin Nemec: All right. Thank you.
Let’s close the polling question.
And we’ll go on to the final polling question. This one’s really important. Whether you know the answer or not, you can put it in. But this is really important for you all to pay attention to the actual answer.
How many months prior to the 1/1/2015 deadline for vouchering under AB 106 should a taxpayer target having all hiring credit voucher applications submitted?
One month;

Two months;
Three months; or
Six months?
And so, since we’re kind of running short on time here, I’ll go ahead and tell you what the answer is. It’s three months. And that’s the outside deadline. As many of you may know that do business in California and take advantage of the California Enterprise Zone Program– that the agencies can vary on the amount of time that they take in giving a voucher back after the application is submitted.
You also need to take into consideration the time that it takes to get the employee data pulled together and to get the application for the voucher submitted.
So, in a ideal world, what we would tell companies is six months would be the ideal, so you would know for certain that you’re not pushing up against a deadline or any zone-based issues of getting your voucher back. That being said, six months is the ideal; three months is probably the outside date that you want to adhere to.
So, with that, we are done with our Webinar today. We appreciate it.
I do have some questions. I know some of them were very specific on– you know, does my company qualify for the hire credit and some stats on a specific company. On those, we’ll reach out via e-mail to those of you to answer those questions.
I’ll just pick one or two really quick ones here that might be of interest to a lot of people on the phone.
If somebody– and this one is for you, Paul. If somebody took the hire credit originally in 2010 and 2011 but didn’t necessarily maximize it, can they go back and take the credit again or amend what they originally submitted?
Paul VanHuysen: Yes. The answer to that is yes. You would just– You can’t submit on the same individual. So you would just want to make sure– When you’re targeting the right population to screen, you’d want to keep those populations, the ones that you previously claimed, completely separate from those that you want to go after, screen and document and then claim on going forward. But, no, you can definitely file those amendments and refunds on unclaimed individuals via the 941 action chain process.
Kerstin Nemec: Okay. And then, finally, where on the 2010 941s would The HIRE Act benefits be listed? What is the entry labeled?
Paul VanHuysen: You know, that one’s probably best responded to via e-mail because, depending on when those amendments were made, the line items shift downward, down the page slightly. So I just want to make sure that I’m answering that properly because it depends on which year’s form that they made that amendment on.
Kerstin Nemec: Okay. Great. So we’ll reach out to that person one on one.
So, Kira, I think that’s it.
Kira Lee Lakin: Great. Thanks, Kerstin. And thanks to everyone who spoke today. That was such an amazing lineup and so much information that, hopefully, will be helpful to those on the phone.
I’d like to invite everyone to follow us on our blog at ADPComplianceInsights.com. This is where we actually archive past Webinars, as well as list upcoming sessions. And we post regular updates on topics that we feel may be important to you.
Just a quick note is that we’re also planning to have the same presenters we had today hold another session on January 21 in the new year so that you’ll have the absolute latest information on all of these programs and as well as some new information on programs that we didn’t get to today. So be sure to check our blog over the next few weeks for more information on that Webinar.
Again, we really appreciate your feedback on how we’re doing, so, please, tell us how we can make these programs even more helpful for you as you fill out today’s post-event survey.
Thanks again for joining us, and have a great day.
Unidentified Participant: Great. And we’ll post the survey now. And, audience members, you’ll be able to see the survey in the slide area. If you could, please, take a moment to complete the survey before logging out of this Webinar. The survey will be up and available for you to fill out within this room for the next 20 minutes, but then it will close down after that. So, please, again, make sure you complete this survey before you log out of this session.
And, with that, this concludes today’s Webinar. Thank you for joining us, and you may now all disconnect. Have a great day, everyone.

 

 

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