Originally created 08/24/96

Tax implications of wage bill uncertain

When President Clinton signed a bill this week raising the minimum wage, workers on the bottom rung weren't the only ones affected.

Businesses, particularly small ones, will get specific tax breaks under a section shoehorned into the bill to mollify businesses that feared raising the base wage would force them to raise prices, not fill openings, or - worse - lay off workers.

The tax provisions aren't meant to be a windfall, but to balance the increase in the minimum wage to $4.75, effective Oct. 1, followed Sept. 1, 1997, by a second increase, to $5.15 an hour.

Rep. Charlie Norwood, R-Ga., who voted for the bill after the tax provisions were included, hopes the employees get the raise and keep the job.

He initially had opposed the wage increase, subscribing to the argument of business groups that warned higher wages will lead to the elimination of 300,000 to 600,000 jobs. Some employers said the wage increase would force them to pay higher wages to more skilled employees.

But by many accounts, few employers actually pay minimum wage, and representatives of several smaller companies - which employ many of the nation's minimum-wage workers - generally said that the wage increase will haveonly a marginal impact on their operations, although they still complained expansion will be curtailed, prices could go up, and vacant jobs would go unfilled.

But it's still too early to know how well the tax mollifications will work.

"Because it's just been signed, the tax implications are yet unknown," said Carleton Vaughn, a tax attorney in Augusta.

"If they're already paying above what the minimum wage is, then these provisions have to be on the plus side," Dr. Norwood said.

The tax provisions for small businesses will give them more generous equipment write-offs. The law also would allow small businesses to immediately deduct up to $17,500 of costs for qualifying property.

"The expensing part of it is nice. It just gives you a little bit more rapid depreciation on equipment you buy," said Augusta accountant Tommy Bone.

Another provision would reclassify convenience stores as gas stations rather than grocery stores, letting owners depreciate stores in 15 years rather than 40. But whether that would offset the labor costs of raising the minimum wage remains to be seen, said one local chain operator.

"That's going to be a hard question to answer, because it depends on how much you can get for depreciation and on what your labor costs are," said Jimmy Holt of Pump-N-Shop stores in Augusta.

"It does not hurt, especially when you have to build the monsters we're building now."

Other provisions include deductions for home offices, a doubling of the amount of land an individual may own and still be considered a first-time farmer, and a tax exclusion for up to $5,250 in tuition for education of employees through May. It also relaxes rules for Subchapter S corporations - the type most common for small and family-owned businesses - and provides a new type of 401(k) pension plan for employees of businesses with 100 or fewer employees.


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