Paychex's New Tax Solution for SMB

Zacks

Paychex Inc. (NasdaqGS:PAYX - News) has recently introduced two new tools that aim at solving certain tax credit related problems for the small and medium businesses (SMBs). The tools, namely Small Business Tax Credit Estimator and Small Business Tax Credit Package, have been innovated by Paychex Insurance Agency, a wholly owned subsidiary of Paychex.

SMBs offering health insurance to their employees are likely to receive certain tax benefits by way of tax credits. These tools will be of immense importance for them to calculate tax credits arising from payment of health insurance premiums.

The first tool is a free web-based tool and can be accessed through the website PaychexInsurance.com. The tool follows the IRS (Internal revenue Service) guidelines and based on employees’ hours, wages, premiums, and employer contributions, it helps to calculate the estimated credit.

Using the second tool, small business owners can assess their eligibility to receive the tax credit and thereby they can file for the same, if found eligible. However, to reap the benefits of the package for the 2012 calendar tax year, business owners have to be a Paychex payroll and Paychex Insurance Agency client for the entire 2012 calendar year.

It can be seen that both the tools are not directly linked to revenue generation. But this might bring a light of hope for the company by way of winning new businesses from the SMB sector.

The SMB sector is being hit hard by lackluster demand due to high unemployment and inflation rates. Paychex is highly dependent on the performance of the SMB sector and this is the reason the company may not see much revenue growth in the near term.

Despite the concern in the SMB sector, Paychex delivered modest second quarter results by marginally beating the Zacks Consensus Estimate on bottom line. Moreover, we are encouraged by Paychex’ endeavour to introduce a software-as-a-service (SaaS) application that is tailor-made for Apple Inc.’s (NasdaqGS:AAPL - News) iPad. With this, the ace payroll, human resource, and benefits outsourcing solutions provider will be able to compete its rivals, Automated Data Processing Inc. (NasdaqGS:ADP - News) and Intuit Inc. (NasdaqGS:INTU - News), whose SaaS-based mobile solutions have already gained decent market share.

Paychex has a Zacks # 3 Rank, implying a short-term Hold recommendation.

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