Valuable Tax Break for '06 and '07 |
Good News: The Tax Relief and Health Care Act of 2006, passed at the end of last year, retroactively reinstated valuable worker tax credits available to employers. Both credits - the Work
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How Audits Changed This Year
Today's businesses are coping with many risks. When undergoing internal audits, they are seeking independent, objective sources to identify and manage those risks. Under new standards imposed by the AICPA Auditing Standards Board, audits are now more effective and comprehensive.
That's because eight new interrelated standards (SAS 104-SAS 111) make improvements to the auditor's assessment of the risks of material misstatement, whether caused by fraud or error. They became effective for audits of financial statements for periods beginning on December 15, 2006, although earlier adoption was permitted.
Specifically, the risk assessment standards require:
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A more in-depth understanding of an entity and its environment, including its internal control. That way, the auditor can identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.
- A more rigorous assessment of the risks of where and how the financial statements could be materially misstated.
- Improved linkage between the auditor's assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.
The standards "get to the very heart of the audit process," according to the AICPA and may significantly alter the engagement. The benefit: More comprehensive audits can add value to an organization and improve operations. | Opportunity Tax Credit and the Welfare-to-Work Credit - had expired but can now be claimed for qualified expenses for employees hired in 2006.
Better news: The new law combines the two credits, and makes certain improvements for 2007.
For 2006, the Work Opportunity Tax Credit is generally equal to 40 percent of the first-year wages up to a maximum of $6,000 in wages. Therefore, the maximum credit per employee is $2,400 (40 percent of the first $6,000 of qualified first-year wages).
The Work Opportunity Credit is available for certain individuals hired from one of eight targeted groups: They are:
- Members of the federal program Temporary Assistance to Needy Families,
- Veterans,
- Ex-felons,
- High-risk youths,
- Vocational rehabilitation referrals,
- Food stamp recipients,
- Supplemental Security Income recipients, and
- Summer youth employees.
Eligibility has been expanded in some cases for 2007. For example, food stamp recipients now qualify if they are under age 39 when hired. The qualifying age used to be 25. Another change: Ex-felons are no longer required to be members of low-income families.
The Welfare-to-Work Credit is only available to employees in families qualifying for long-term family assistance. For 2006, the maximum Welfare-to-Work Credit is equal to 35 percent of $10,000 of first-year wages; 50 percent of the first $10,000 of second-year wages. The total two-year credit per worker is $8,500.
For 2007, the Work Opportunity Credit and the Welfare-to-Work credit have been combined under a single umbrella. The group of long-term family assistance (welfare) recipients has been incorporated into the list of targeted groups. The maximum credit for members of this particular group is equal to 40 percent of $10,000 of first-year wages and 50 percent of the first $10,000 of second-year wages. So the total two-year credit per qualified worker is $9,000.
Planning Ahead for Summer
Keep in mind that the credit for summer youth employees is different than the regular Work Opportunity Credit.
The summer credit is generally equal to 25 percent of the employee's first-year's wages up to $3,000. Thus, the maximum credit per qualified worker is $750. However, this credit is increased to 40 percent of the first $3,000 in wages if the youth works 400 hours or more, for a maximum of $1,200 per worker.
To qualify, the individual must:
- Perform services for the employer between May 1 and September 15,
- Generally be age 16, but not yet age 18, on the hiring date,
- Have not worked for the employer before, and
- Live within an empowerment zone or an enterprise or renewal community.
Caution: To claim these credits, the employer must meet certain certification procedures spelled out in the law. Paperwork must be filed and deadlines must be met. Consult your tax adviser for proper guidance.
Under current law, eligible employees must begin work before January 1, 2008. However, these credits have been repeatedly renewed in the past and an extension is being currently discussed by Congress as part of the proposed law to increase the minimum wage.
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