When a supplier trains the employees of a spring manufacturer in the use of new equipment, the business benefits by getting a trained employee at no cost. However, the supplier providing that training is the only tax write-off beneficiary. While there is no cost to the spring manufacturer there also is no tax deduction.
The cost of training for new as well as existing employees is a tax-deductible expenditure, as long as that training is job-related; this means the employee gets smarter and is better able to perform. Naturally, there is no tax “cost” to the employee receiving the training.
Employers can also create smarter employees by paying for education with a slightly more formal plan. Thus, an employer can deduct up to $5,250 of an employee’s educational costs each year. For tax purposes the employee ignores the costs reimbursed by his or her employer.
But how can a springs manufacturer or supplier find a worker to hire?
The Work Opportunity Tax Credit
Many non-profit, state and local governments as well as industry groups provide a variety of worker training programs at no cost to businesses that may be thinking of relocating or expanding within the areas they serve. Unfortunately, many of these programs limit training in specific job skills to larger employers. Smaller spring manufacturers may find other organizations that provide basic job training to make their workers more employable. Employers can also benefit with a unique tax credit.
Federal tax laws contain a tax credit, a direct reduction of the spring manufacturer’s tax bill rather than a deduction from its taxable income, for wages paid to workers hired from certain targeted groups of hard-to-employ individuals. The credit is 40-percent of the first $6,000 of wages ($3,000 for qualified summer youth employees) paid to each member of a target group during the first year of employment and 25-percent of the cost of wages attributable to individuals meeting only minimum employment levels.
Wages paid to individuals who are certified members of the following groups qualify for the work opportunity credit:
• Qualified Aid To Families With Dependent
Children (AFDC) recipients;
• Qualified veterans;
• Qualified ex-felon;
• Designated community resident (formerly the high-risk youth group);
• Vocational rehabilitation referral;
• Qualified summer youth employees;
• Qualified food stamp recipient;
• A qualified SSI recipient; or
• Long-term family assistance recipients,
the former welfare-to-work individuals
Education As A Fringe Benefit
How can any springmaker hope to compete for the ever-dwindling number of qualified workers available in today’s marketplace? How can anyone afford the unprecedented compensation being offered today? More importantly, how can your manufacturing operation or business keep the workers that are essential to its success and afford to compete for new workers to help it grow?
Surprisingly, surveys show it is not money alone that attracts new workers and keeps existing employees on the job — it is the benefits. Among the “perks” most often chosen by employees only one, education or personal development, actually costs the employer. That is where our tax rules step in to provide a helping hand.
A largely ignored provision in our tax law permits every springmaker to claim a tax deduction for expenditures made to educate or train employees. This is an ideal “fringe” benefit for any employee — even employee owners of their own businesses. Best of all, it is deductible by the business and tax-free to the recipient.
Employee Benefits
Thanks to yet another provision in our tax law, every business can not only can afford to offer fringe benefits to their workers, they may even be able to benefit themselves. Ordinarily, every employee (as well as the operation’s owner) is permitted a personal income tax deduction for money spent for educational expenses, even if they lead to a degree. According to the rules, that education must maintain or improve a skill required by the individual in his or her employment, meet the express requirements of the employer or of law imposed as a condition to the individual’s retention of his or her job or rate of compensation.
When education is offered as a fringe benefit by a springmaker, the payments received by an employee for tuition, fees, books, supplies, etc., under the employer’s educational assistance program may be excluded from the employee’s income up to $5,250 per year. Although the courses covered by the plan need not be job related, courses involving sports, games or hobbies may be covered only if they involve the employee’s business or are required as part of a degree program.
And, best of all, a springs manufacturer or business may claim a full tax deduction for the amount paid to employees. Drawbacks include the necessity of a formal tuition reimbursement plan and sufficient cash flow to fund that program.
Although these educational assistance programs do not require actual or immediate funding by the springmaker, reasonable notification of the availability and terms of the program must be provided to all eligible employees. In light of the fact that the spring maker is not required to put money into the company’s educational assistance plan each year, the program obviously cannot provide employees with a choice between educational assistance and other remuneration included in gross income.
Personal Educational Deductions
According to our tax rules, educational expenses are generally tax deductible (even if they lead to a degree) if:
• The education undertaken “maintains or improves” a skill required by the individual or the individual’s employer;
• Or undertaken to meet the requirements of law or regulations, imposed as a condition to the retention of the individual of an established employment relationship, status or rate of compensation.
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…best of all, a springs manufacturer or business may claim a full tax deduction for the amount paid to employees.
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When it comes to determining whether someone is eligible for a personal tax deduction for educational expenses, the minimum education necessary to qualify for a position or other trade or business is usually determined by considering such factors as the requirements of the employer, law and regulations as well as the standards of the profession, trade or business involved.
Of course, the fact that the taxpayer is already employed does not mean that they have met the minimum requirements for qualification. However, if new educational requirements are established after the taxpayer has met the minimum requirements for qualification in his or her work, they will be treated as continuing to meet those requirements and expenses incurred in meeting the new requirements are deductible.
Keep in mind, however, that a mere change in duties is not a new trade or business if the new duties involve the same general work as is involved in the taxpayer’s present employment.
Mirror Benefits
When setting up any benefits plan that is tax deductible by the springs operation and tax-free to the recipient, our tax laws merely prevent an employer from discriminating in favor of owners, key employees or other highly-compensated individuals. Those laws do not say that the springs manufacturing operation’s owner cannot also benefit from the same “perks” offered every other employee.
Under the tax rules governing educational assistance programs, the term “employee” includes the majority of self-employed individuals within the springs industry. In fact, any individual who owns the entire interest in any unincorporated trade or business is treated as his or her own employer. A springs manufacturing operation doing business as a partnership is treated as the employer of each partner who is an employee.
Training and education are vitally important for every springmaker in order to ensure the success and continued profitability of their business. Our lawmakers want to encourage education and training. As mentioned, the tax rules contain an unusual number of incentives and tax deductions for individuals — both employees and self-employed business owners — who continue with their education.
Those training and educational expenses, whether paid for by the springmaker/employer, by a supplier or equipment distributor, subsidized or sponsored by an industry group or association can be considered fringe benefits because they are, for the most part, tax-free to the recipient.
Regardless of who benefits from training or education, it is the one paying that can claim a tax deduction. The worker, who pays for the education necessary to do his or her job better, enjoys a personal tax write-off. The supplier, training a springmaker’s workers, claims the tax deductible cost of that training. An employer, training workers or offering an educational plan, also enjoys a tax write-off — and a smarter, better-trained workforce.
