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Tax Issues to Consider When Investing in Training and Recruiting

2/28/19 – Ryan Redleski

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A top concern for manufacturers is the shortage of skilled workers. There are various options to bridge the skills gap, but training and recruiting options often require a substantial investment. What’s the most cost-effective way for you to tackle this challenge?

Deducting training costs

Before looking outside your organization for skilled job applicants, consider your existing employees. Could any promising employees qualify for an open position with the right training?

In addition to any continuing education requirements, employees may want to advance their skill set or simply keep their skills up to date. Depending on the number of employees who would like to participate, employers might decide to offer a class onsite or online — or send employees to an offsite location for training.

For federal tax purposes, companies can generally deduct the cost of courses that employees attend to maintain professional or job-related skills. The write-off covers items such as tuition, books, supplies and certain travel costs. (However, there are some limits for owners on deducting the cost of education that is not job-related.)

Additionally, some employers offer tuition reimbursement programs for work-related education expenses. Typically, these reimbursements are a tax-free fringe benefit to employees (no income or employment taxes), and the employer can deduct the costs as business expenses.

Alternatively, if a company maintains an educational assistance plan, employees may be able to receive up to $5,250 in annual tax-free education benefits. The plans can be used for tuition, fees, books, supplies and related equipment. If you pay more than $5,250 in educational assistance benefits to an employee annually, he or she must generally pay tax on the excess amount.

Finally, do not forget about the States! States offer many incentives for skills training and investment in ongoing employee development. These incentives are generally received in the form of tax credits, either refundable on the return or as an offset against payroll taxes.

Offering internships                                                                                          

If existing employees are unable (or unwilling) to fill a position, it’s time to look outside your company. Internships can be an affordable way to vet candidates and infuse your teams with fresh, new ideas. Some manufacturers partner with local high schools, tech schools, community colleges and universities. You may still be required to offer a modest salary under state and federal labor laws. Bottom line is that interns who are paid and assigned meaningful work can be eager, productive team members. They’re also more likely to return to work for you as full-time employees — and spread the word to their friends.

Relocating new hires

For hard-to-fill positions, you may need to expand the search beyond your company’s geographic reach. And you might have to offer financial incentives to lure applicants. 

In addition to paying signing bonuses and premium salaries, relocation packages can help attract talent, especially to less populated areas. Typically, employers provide an advance for moving expenses with an agreement that the new hire will return any excess funds within a reasonable time period.

In prior years, qualified business moving expenses and reimbursements were not considered taxable fringe benefits, allowing them to be excluded from an employee’s income as well as payroll taxes. However, with the passing of the Tax Cuts and Jobs Act (TCJA), this exclusion has been temporarily suspended. As a result, moving expenses and reimbursements are now considered a taxable fringe benefit, which is required to be reported in an employee’s income and is subject to payroll taxes. Like with many of the TCJA provisions, the exclusion is subject to a “sunsent”, meaning that the suspension will no longer be in effect for tax years beginning after December 31, 2025. The moving expense deduction is still applicable for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Bridging the skills gap

Looking for help attracting and retaining skilled workers? Contact your VonLehman advisor for creative, cost-effective solutions. 

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x Reform - Tax Cuts & Jobs Act