Identify and Comply: Employer Big Data and Tax Credits

Identify and Comply: Employer Big Data and Tax Credits

This article was updated on Sept. 18, 2018.

When it comes to big data, some analysts focus on volume and velocity, but the third "v," variety, can deliver the biggest bottom-line impact. For certain employers, but especially those with broad U.S. geographical and demographic reach, or those contemplating expansion, mining through a variety of big data sources can yield government tax credits for your organization. Analysts will increasingly pair big data and tax credits in their research.

The first challenge, though, is to identify potential benefits of that variety.

Automating Tax Credit Opportunity-Finding

Finding available tax credits mainly touches upon the disciplines of tax accounting, legal and HR, but can impact operating unit managers, too. Where to open a new retail, service or manufacturing facility, for instance, entails a close look at potential tax credits, as well as other factors.

Tools that leverage a database of 3,000 credit opportunities and geolocation mapping software are resources that match tax credits to hiring patterns by combining applicant screening processes across HR web, call center and mail channels.

For large firms operating in multiple tax jurisdictions, automation may be key.

Identify and Comply

Tax credits come with a price: compliance.

The What is the Work Opportunity Tax Credit (WOTC) incentivizes employers who hire veterans and other labor categories the government identifies as burdened with significant barriers to employment. WOTC now includes the Welfare to Work component. In addition to veterans, the target populations include food stamp recipients, residents of empowerment zones, referrals from vocational rehabilitation services, ex-felons, recipients of supplemental security income and summer youth employees who live in empowerment zones. The Department of Health and Human Services also funds the Temporary Assistance for Needy Families (TANF) initiative. Family members who are recipients of TANF for at least 18 months also qualify for WOTC.

In addition to WOTC, federal employer tax credits include the Empowerment Zone Employment Credit, Employer Social Security and Medicare Tax credits as well as the Indian Employment Credit. Additional federal incentives are available through economic development credits.

Each tax credit has a different set of employer submission requirements in order to receive the benefit. For example, to comply with the WOTC credit regulations, employers must follow a step-by-step process outlined by the Department of Labor. After being certified by an applicable State Workforce Agency, employers submit IRS Form 8850, followed by ETA Form 9061 (alternatively Form 9062) with documentation showing the employee's membership in a target population. The employee track must be complied with within a strict 28-day time frame. This two-track (employer certification, employee eligibility) WOTC workflow is typical for tax abatement programs.

The regulations surrounding some of these incentives are nontrivial, but employers need not go it alone. Some employers can choose to outsource this work to CPAs or share the effort with in-house accountants. Other firms partner with employers to provide tax credit and economic incentive specialists. Partnerships that include a combination of specialist talent and software likely serve larger firms more effectively; the addition of even modest process automation can help improve efficiency and ensure compliance with regulation.

Big Data and Tax Credits

Big data holds the promise to help organizations identify areas where tax credits apply. Employer big data variety will grow to include not only more demographics about employee and applicant populations, but data about the communities where businesses operate. Business decisions for site selection, contracting, advertising and staffing will all be affected. Big data and tax credits might lead the way.

Big data sources will include those provided by the U.S. Census, the Pension Benefit Guaranty Corporation and local open government initiatives such as the Open Data project of Cambridge, MA. True to the big data variety principle, those sources can be supplemented by commercial sources as well as in-house data sets increasingly referred to as "first-party data."

Taken together with powerful data analytics, big data variety will bring to light a revenue dimension in HR that give more enterprise oomph to more traditional HR roles.