New Tax Law Frees Up Cash to Invest in Your Workforce
posted Mar 12, 2018 by Paul Oliveira, CPA in the Global Tax Blog
Many businesses will pay less tax starting in 2018, thanks to the Tax Cuts and Jobs Act. How do you plan to spend the savings? One smart option — especially for tech companies and advanced manufacturers that struggle to find qualified workers — is to beef up training and recruiting efforts. Investing in your workforce could lower your tax bill even further by providing additional expense deductions. Here are the details.
Building a workforce to meet tomorrow’s growth opportunities starts inside your company. Before hiring outside candidates in today’s tight labor market, evaluate your existing talent pool. With the proper training, some of your current employees might be able to fill your open positions.
As an added bonus, training or coursework that maintains an employee’s professional or job-related skills is generally tax deductible. Your write-off may include:
- Books and supplies, and
- Certain travel costs.
Alternatively, employers may offer tuition reimbursement programs (a tax-free fringe benefit) for work-related education expenses. Employees aren’t required to pay income or employment taxes on payments from tuition reimbursement programs. And your company can deduct the costs as business expenses.
If an employee wants to pursue an educational opportunity that’s not job related, you might consider an educational assistance plan. This option can provide an employee with up to $5,250 in annual tax-free education benefits. Any educational assistance benefits that exceed this limit must generally be claimed in the employee’s taxable income. However, these plans are more flexible; they may qualify an employee for a different job and serve as a perk that helps your company retain employees and improve worker satisfaction.
For hard-to-fill positions, manufacturers may need to look outside of their ranks and possibly even expand their search beyond their local labor market. Recruiting is usually more expensive and time-consuming than training your existing workers.
The silver lining is that recruiting costs are normally deductible as normal business expenses. For example, a business can deduct:
- Travel expenses to bring job applicants to your office for an interview, and
- Signing bonuses to lure them in.
However, for 2018 through 2025, employees can no longer exclude the value of employer-provided reimbursements for moving expenses from their taxable income; so, those payments are now subject to payroll and income taxes. (An exception is made for active-duty military personnel, however.) In addition, employees’ itemized deductions for moving expenses (with an exception for members of the military in certain circumstances) are eliminated for 2018 through 2025 under the new tax law.
The first step in investing in job training and workforce development is setting your budget. Contact our tax services team to determine how much you’ll save under the new tax law, along with the extra tax breaks for training and recruiting expenses. From there, KLR’s Executive Search Group, LLC can help you identify and remedy any vacant positions and skills gaps in your existing workforce.