November 1, 2014

Count Them: 5 Tax Benefits of The American Jobs Act

In a speech to the joint session of Congress on September 8, President Obama laid out his plan to spark the economy and put Americans to work with the American Jobs Act. This jobs bill contains several tax initiatives and incentives to promote investment, and hiring in particular. The President also wants to send billions to help states keep teachers, emergency workers and others employed and fund approximately $50 billion in infrastructure projects.

U.S.A. Piggy Bank

The plan is targeted more at small businesses than at large corporations – which may reflect the administration’s thinking that big companies have bounced back from the financial crisis more successfully than smaller businesses have.

These initiatives require Congressional approval. And while the President is making his case throughout the country with enthusiastic rallies and “Pass this Bill!” chants, even the savviest political pundit can’t predict how exactly this will play out.

If you’re a small business owner, the impact of the American Jobs Act may be significant. Here’s an outline of some of the initiatives you should be tracking over the coming months:

1. Payroll tax cuts: The plan cuts the employer share of payroll taxes to 3.1 percent on the first $5 million in wages. According to the White House, this tax cut would benefit the 98 percent of businesses with wages below $5 million. By halving the payroll taxes on the first $5 million, the President hopes to stimulate job growth among smaller companies.

In a U.S. News & World Report article, Todd McCracken, president and CEO of the National Small Business Association, was quoted as saying: “The impact of payroll tax cuts is fairly substantial. It gives [businesses] the cash flow that they need to think about expanding. If they’re thinking about hiring, it’s going to make it more affordable for them in the near term.”

2. Payroll tax holiday: The plan would eliminate the entire 6.2 percent payroll tax on any increase in payroll (for added workers or increased wages) up to $50 million above the prior year.

3. Extend 100 percent expensing into 2012: Companies can fully depreciate certain purchases in the first year (instead of having to amortize these purchases over as long as 20 years). The goal here is to encourage new investment.

4. Tax credits for hiring the long-term unemployed: The plan proposes a $4,000 tax credit for any business that hires an individual who has been unemployed for at least 6 months. And considering that a recent review of job vacancy postings on sites like Monster.com by the New York Times revealed that employers have a strong preference for people who are still employed or just recently laid off, the long-term unemployed need all the help they can get.

5. “Returning Heroes” tax credit for hiring veterans: If a company hires a veteran, the tax credit increases to as much as $5,600, and reaches $9,600 if the veteran became disabled in the course of serving. Unemployment rates among veterans are truly shocking (13.3 percent), so most would agree with the idea of encouraging the private sector to hire or train our veterans.

Of course, since the initial framework of the plan was first revealed, many in the small business community have expressed their disappointment that the plan doesn’t address one of the biggest challenges facing small business success and growth: the difficulty startups and small businesses face in securing credit from banks.

And here’s where one of the more compelling initiatives from the Administration comes in. The White House plans to ask the SEC “to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection, including expanding ‘crowdfunding’ opportunities and increasing mini-offerings.”

I know that many are skeptical of Washington’s ability to help the private sector. But the potential to get money flowing to startups and Main Street businesses could be a game changer. Small businesses should closely monitor the progress of the above proposals over the course of the next few months.


Image from Mishchenko Mikhail/Shutterstock

8 Comments ▼
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Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

8 Reactions

  1. They need to just sign the act. The economy is so bad, and is affecting everyone else’s.

    SIGN IT.

  2. Hell No!! Don’t sign it!

    It is more pork that will be subverted to Acorn and Obama’s Union thug buddies.

    More Chicago-styled (read: corrupt) politics.

  3. If they pass it, we will be doomed with superhyperinflation. The bill will kill more than hurt – no money to pay for it.

  4. While I think they’re saying the right things and targeting the right areas, I wish they’d get rid of tax regulations altogether. Make the whole system more simple.

  5. A) They can’t sign it as it has not yet even been submitted to the house for discussion. B) it is so full of things that will kill business it is not even funny. look around the internet, you will find a copy of the bill. it is not easy reading, but it is important.

    I hope they take some of the ideas that he is vocal about (other than tax the rich that is) and implement them while ignoring all the pork he wants.

  6. This is more of the same. Short term tax credits and special programs are election gambits. We need a long term plan to massively cut the deficit and get federal spending and regulations under control. This will bring back confidence in our government and our economic future.

  7. I guess time will tell whether or not these will benefit small businesses.

  8. Let’s see if this makes sense. Business don’t have money to hire anyone. The government is going to give them a tax credit of $4000+ for the YEAR to hire someone who has been unemployed for a long time, a veteran, or a disabled veteran. So, a business (that has no money) will hire someone and won’t pay them more than the amount they are going to receive in tax credit, otherwise they will lose money if the employee is not a revenue producer. Unemployment will drop for 1 month then we’re back to where we started. Except the government will be even more in debt when it doesn’t receive revenue due to tax credits. Government needs to stay out of the private sector, and stop trying to create demand where there isn’t any.

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