FAQ2020-04-01T17:02:10-07:00

ASK & WE ANSWER

FREQUENTLY ASKED QUESTIONS

Frequently Asked Questions

We do our best to anticipate the needs and questions of our clients.
Here are a few of the questions we hear regularly.

What is the Work Opportunity Tax Credit?2020-04-19T08:49:10-07:00

The Work Opportunity Tax Credit or WOTC is a federal income tax credit earned by US employers. The amount of tax credit earned is based on the amount of wages the employer pays to one or more qualifying employees.

How Do I Make a Claim for WOTC?2020-04-19T08:48:12-07:00

Qualified tax-exempt organizations will claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, as a credit against the employer’s share of Social Security tax. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

Which Employees are Eligible Under the Work Opportunity Tax Credit?2020-04-19T08:50:40-07:00

Eligibility is based on an employee’s circumstances at the time of hire and prior to hire. There are currently 10 categories or Target Groups of eligible employees.  Eligible employees must be Certified as eligible by the State Workforce Agency of the state where they work.

Here is the basic list of the Target Groups for WOTC:

  • Qualified IV-A Recipient
  • Qualified Veteran
  • Ex-Felon
  • Designated Community Resident (DCR)
  • Vocational Rehabilitation Referral
  • Summer Youth Employee
  • Supplemental Nutrition Assistance Program (SNAP)
  • Supplemental Security Income (SSI) Recipient
  • Long-Term Family Assistance Recipient
  • Qualified Long-Term Unemployment Recipient
Are There Limits to WOTC?2020-04-19T08:50:53-07:00

The credit is limited to the amount of the business income tax liability or social security tax owed.

A taxable business may apply the credit against its business income tax liability, and the normal carry-back and carry-forward rules apply. See the instructions for Form 3800, General Business Credit, for more details.

For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.

What is the Pre-screening and Certification Process for WOTC?2020-04-19T08:57:03-07:00

An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.

Contact us.  Our experienced professionals can assist you with processing of the Form 8850.

What is Cost Segregation?2020-04-19T08:17:21-07:00

Whether you are building, remodeling, expanding, or purchasing a facility, a cost segregation study can help increase your cash flow. Many property owners do not take advantage of these provisions and end up paying federal and state income taxes sooner than they need to.

Cost segregation is a tax deferral strategy that frontloads depreciation deductions into the early years of ownership. Segregating the cost components of a building into the proper asset classifications and recovery periods for federal and state income tax purposes results in significantly shorter tax lives (5-, 7-, and 15-year) rather than the standard 27.5- or 39-year depreciation periods. In other words, you are able to defer taxes, putting more cash in your pocket today.

Why Haven’t I Heard of Cost Segregation?2020-04-19T08:29:41-07:00

Cost segregation was first applied and performed by major accounting firms with in-house cost segregation departments on the largest properties of their most significant clients. One study originally cost upwards of $100,000.

Now companies can deliver this same service to commercial property owners at very affordable rates. This means you can take advantage of this tax savings that was once only enjoyed by the owners of exceptionally large properties.

What Information Will Be Needed to Complete a Cost Segregation Study?2020-04-19T08:31:32-07:00

Companies generally request the following information, if available:

  1. A current depreciation schedule if available
  2. Building cost information if available
  3. Appraisals & Blueprints or a floor plan drawing if available
Why Should I Perform a Cost Segregation Study?2020-04-19T08:30:04-07:00

Without a Cost Segregation Study your accountant will only be able to use straight line depreciation, 39 or 27.5 years. A Cost Segregation Study provides your accountant with accurate information to establish 5, 7, 15, and 27.5 or 39-year depreciation schedules, which substantially increases tax savings in the earlier years of owning your property.

When Should a Cost Segregation Study Be Done?2020-04-19T08:30:14-07:00

It is best to have a study completed for the year the building or improvements are placed in service. However, US Tax Code allow taxpayers to “catch up” on the depreciation that was not claimed from the first day the property was placed in service without amending prior years’ tax returns. Furthermore, the US Tax Code allows for the “catch up” period all in the first year rather than over four years, when the Revenue Procedure 99-49 was first introduced. A cost segregation study can be performed on any property constructed, acquired or remodeled since Jan. 1, 1986.

Who Should Perform My Cost Segregation Study?2020-04-19T08:30:30-07:00

Choose an engineering-based cost segregation study company that has the expertise in tax laws, cases, and ruling on cost segregation, along with real estate development and construction experience to maximize your tax savings. Only exceptionally large accounting firms have in-house Engineering Analysts who can perform a cost segregation study at substantial fees. A good Cost Segregation company will work with your advisors to help you take advantage of this extremely viable tax savings solution.

Does My Property Qualify?2020-04-19T08:32:30-07:00

In general, a facility may qualify for a cost segregation study if:

  • The facility has a depreciable basis of at least $1,000,000 or leasehold improvements of greater than $300,000
  • The facility or improvements have been placed in service any time since 1987

A cost segregation study may be performed for:

  • New construction
  • Purchased properties
  • Ground-up, remodel, or expansion
  • Leasehold improvements (paid by tenant or landlord)
Will a Cost Segregation Study Trigger an Audit?2020-04-19T08:30:46-07:00

No.  A Cost Segregation Study strictly adheres to the Cost Segregation Audit Technique Guidelines.

What is a PEO?2020-04-03T10:10:11-07:00

Professional employer organizations (PEOs) provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations. In addition, many PEOs also provide workers with access to 401(k) plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses. In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients can thus focus on their core competencies to maintain and grow their bottom line.

Who uses a PEO?2020-04-03T10:09:45-07:00

Any business can find value in a PEO relationship. ​The average client of a NAPEO member company is a business with 19 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust web-based HR technologies and expertise in HR management. PEOs can partner with companies that have 500 or more employees and work in conjunction with their existing human resources department.

PEO clients include different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. A broad range of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.

How does a PEO arrangement work?2020-04-03T10:09:07-07:00

Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship, which involves a contractual allocation and sharing of employer responsibilities between the PEO and the client pursuant to a client service agreement (CSA). The PEO typically remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities. The PEO also issues the Form W-2 for the compensation paid by it under its EIN. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities, as determined in the CSA. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.

What is NAPEO?2020-04-03T10:08:43-07:00

Formed in 1984, the National Association of Professional Employer Organizations is the Voice of the PEO Industry® and the Source for PEO Education®. NAPEO promotes a Code of Ethics and best practices to its member companies. We represent about 85 percent of the industry’s estimated $136-$152 billion in gross revenues and have 300 PEO members, ranging from start-ups to large publicly held companies with years of success in the industry, as well as some 200 service provider members.

Are PEOs recognized as employers at the state and federal levels?2020-04-03T10:08:20-07:00

Yes. PEOs operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for PEOs. These states statutorily recognize PEOs as the employer or co-employer of worksite employees for many purposes, including workers’ compensation and state unemployment insurance taxes. The IRS has recognized the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees per section 3511 of the IRS Code. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.

Why would a business use a PEO?2020-04-03T10:07:23-07:00

Business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” As businesses grow, most owners do not have the necessary human resource training, payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise.

Do business owners lose control of their businesses when they work with a PEO?2020-04-03T10:07:00-07:00

No. The PEO client/business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement (CSA). The PEO will generally only assume responsibilities associated with a “general” employer for purposes of administration of benefits and remittance of payroll and payroll taxes. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for remittance of payroll and employment taxes, may maintain employee records and may retain a limited or general right to hire and fire, as delineated in the CSA. Because the PEO also may be responsible for providing access to workers’ compensation coverage, many PEOs also focus on and provide assistance with safety and compliance. In general terms, the PEO will focus on employment-related issues, and the client will be responsible for the actual business operations.

What is the difference between a PEO and an employee leasing company?2020-04-03T10:06:23-07:00

PEOs do not supply labor to worksites. PEOs supply services and benefits to a business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees and sponsor benefit plans for the workers and provide human resources services to the client. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of the business client. If a PEO relationship is terminated, the worksite employees’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.

By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as a temporary employment arrangement where one or more workers selected by the leasing or staffing entity is assigned to a customer frequently for a fixed period of time or for a specific project. Upon termination of the staffing or leasing company arrangement, the worker has no continuing employment relationship with the client.

Historically, leasing terminology was used to describe what has evolved into PEO relationships. Some older state statutes governing PEOs still use the leasing terminology, contributing to the confusion about PEOs.

What is the difference between temporary staffing services and a PEO?2020-04-03T10:05:43-07:00

Like a leasing situation, a temporary staffing service recruits and hires employees and assigns them to clients to support or supplement the client’s workforce in special work situations, such as employee absences, temporary skill shortages or seasonal workloads. These workers are traditionally only a small portion of the client’s workforce.
PEOs do not supply labor to worksites. They co-employ existing permanent workforces and provide services and benefits to both the worksite employer and the employees.

How many businesses use a PEO?2020-04-03T10:05:08-07:00

PEOs provide services to between 156,000 and 180,000 small and mid-size businesses, employing between 2.7 and 3.4 million people.

How do PEOs help their clients to control costs and grow their bottom line?2020-04-03T10:04:35-07:00

A PEO’s economy of scale enables each client company to lower employment costs and increase the business’s bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

How do workers benefit from a PEO arrangement?2020-04-03T10:03:46-07:00

Through a PEO, the employees of small businesses gain access to big-business employee benefits such as: 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company. And, when a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, enhanced benefits, training, employee manuals, safety services and improved communications.

Do workers receive compensation benefits through a PEO?2020-04-03T10:03:09-07:00

Frequently, a PEO arrangement is the only opportunity for a worker in a small businesses to receive Fortune 500-quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Absent the PEO, a small business can neither afford nor manage these benefits.

Does a PEO arrangement impact a collective bargaining agreement?2020-04-03T10:02:25-07:00

No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that in co-employment relationships, worksite employees are appropriately included in the client employer’s collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement’s terms. PEOs endorse the rights of employees to organize, or not organize, under state and federal laws.

Do PEOs need to be licensed to provide insurance benefits to worksite employees?2020-04-03T09:53:57-07:00

Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers’ compensation and unemployment benefits, or they may be voluntary benefits that will help attract and retain quality employees, such as health, life, dental and disability insurance. PEOs might sponsor or acquire access to programs for worksite employees. As such, PEOs are consumers of insurance and procure access to these benefits from licensed insurance agents and authorized insurers.

Why is it important for a PEO to have audited financial statements?2020-04-03T09:52:57-07:00

A number of state PEO licensing and registration laws require audited financial statements. In addition, the PEO industry best professional performance practices recommend audited financial statements in order to enhance internal controls and accuracy of financial information. While independent audits cannot prevent fraud or financial failure, they provide management with an independent review of and opinion that the financial statements of the entity are accurate, complete and fairly presented according to generally accepted accounting principles (GAAP).

Is a PEO’s financial statement publicly available?2020-04-03T09:52:14-07:00

Similar to their business clients, most PEOs are private entities that do not have public financial statements. Nonetheless, clients are advised to check a PEO’s references, reputation, and financial background. Ask if the PEO has audited financial statements, obtain credit references, and conduct due diligence. In states where required, make certain that the PEO is duly licensed or registered. Many PEOs provide clients an independent CPA’s attestation regarding the PEO’s audited financial statements and payment of taxes and benefit plans.

Who qualifies for the R&D Tax Credit?2020-04-03T09:44:00-07:00

Companies who use a trial and error process to solve technical problems qualify for the R&D Tax Credit. If your company evaluates alternatives and uses principals that are technical in nature (i.e. engineering, computer science, or physical sciences) to solve any type of problem then the R&D Credit is for you.

*Pass-Through Entities may qualify for cash with R&D Tax Credits!

How do I claim the credit?2020-04-03T09:44:09-07:00

A taxpayer can claim the R&D Credit by completing Form 6765. In order to complete this form a company must identify qualified research expenses (QREs) as defined by section 41(d) of the Internal Revenue Code. QREs are connected to qualified research activities claimed. Identifying qualified research expenses usually requires guidance from third-parties with expertise in the various tax law surrounding the credit.

How long can I used the credit for?2020-04-03T09:44:16-07:00

As long as your company is performing qualified research activities, it should be claiming the tax credit. Un-used credits can be carried forward for 20 years and backwards one year.

Can I get R&D Credits for prior years?2020-04-03T09:44:24-07:00

Yes, the credit can also be applied retro-actively to amended returns for the previous three open tax years. This means that companies who go back and amend returns to claim R&D credits for previous years can potentially receive a refund treasury check for taxes it paid before the credit was applied.

I work under contract to perform services for clients. Can I still claim the R&D Credit?2020-04-03T09:44:32-07:00

Generally, if your contracts are firm-fixed price then you are still eligible for the R&D Credit. Contractors that work under fixed-price fees and whose work is subject to inspection, testing, and acceptance are considered to be conducting non-funded research. Additionally, if your client can withhold payment until deficiencies are corrected, or if your projects contain warranty clauses, the R&D Credit may be claimed.

What if a qualified R&D project I was working on failed?2020-04-03T09:44:38-07:00

The R&D Tax Credit law makes no distinction on whether or not the project has to be successful in order to claim R&D credits. The fact that research and development conducted by a company did not turn out a successful product and solution proves that the company performed qualified research. The research shows that there was significant uncertainty. Qualifying companies include those that have products fail as well as service-based firms who work to provide engineering solutions for a client but are never awarded a contract.

More Questions? Contact Us!

39520 Murrieta Hot Springs Rd.
Suite 21916
Murrieta, CA 92563

(951) 225-5681

rene@refocusedbc.com

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