By Shane M. Finn and Christopher Marrie
With the cost of doing business constantly on the rise and as it becomes more difficult to find quality employees, there is no better time to pursue employment-based tax credits. There are both federal and state employment-based credits available that can help businesses offset income tax liability.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (“WOTC”) program is a federal government initiative designed to increase employment opportunities for people who have certain barriers to employment. The employer receives a federal income tax credit that reduces its federal income tax liability and gives job-seekers down on their luck an opportunity. The business must have tax liability to use the credits. Unused credits can be carried back one year and carried forward for 20 years.
The WOTC can range from $1,200 to $9,600 for each qualified new hire depending upon the new hire’s target category. There are currently 14 different target categories under which an employee may qualify.
Veteran Target Groups
- Veterans with a service-connected disability who have been unemployed for at least 6 months in the past year
- Veterans with a service-connected disability and hired within 1 year of their discharge/releasedate
- Veterans who have been unemployed for at least 6 months
- Veterans receiving Supplemental Nutrition Assistance Program (“SNAP”) benefits
- Veterans who have been unemployed for at least 4 weeks but less than 6 months
Non-Veteran Target Groups
- Long-term unemployed
- SNAP recipients
- Temporary Assistance for Needy Families (“TANF”) recipients
- Long-Term Family Assistance recipients who are members of a family that has received TANF benefits for at least 18 consecutive months
- Supplemental Security Income recipients
- Vocational rehabilitation referrals
- Designated community residents
- Summer Youth program participants who are 16 to 17 years old, work between May 1st –September 15th, and live in a designated community area
Construction Industry WOTC can be very beneficial to Construction Industry. The industry has experienced continued growth in the last several years and company owners find themselves struggling to find qualified employees to keep up with demand. With the expanding pool of potential hires and the number of veterans entering the workforce, contractors can accomplish two goals: 1) tax planning and 2) finding qualified team members. When hiring individuals who qualify, contractors may successfully claim the WOTC to reduce their tax liability and sustain business growth.
Work Opportunity Tax Credit Benefits
Participating in credit programs like the WOTC program can minimize a company’s tax liability and offset the high capital costs associated with new, expanding, or relocated business sites. These tax credits can also enhance cash flow to your business and can be used to offset the need for cutbacks and allow funding for other special projects. WOTC credit programs can further allow the HR and tax departments to become revenue generating areas.
Employees can benefit from employment-based tax credits in several ways. For some individuals, gaining employment through the assistance of tax credit programs, like WOTC, removes the need for assistance from government-aid programs like the TANF or SNAP. Because employment-based tax credits can help offset some of the costs of doing business, the credits can be used to fund special projects that benefit employees or perhaps even provide raises for many employees.
Participating in federal and state employment-based tax credit programs can provide a win-win outcome for both employers and employees. Not only can your business benefit from reduced income tax liability thereby freeing income to spend on other projects, but your employees can benefit from gainful employment and special benefits funded by the tax savings generated from the participation of employment-based tax credit programs.
Many states also have targeted employment tax credits with similar qualification criteria as the WOTC that are commonly referred to as “WOTC piggy-back credits”.
About the Author
Shane directs HBK CPAs & Consultants State and Local Tax (“SALT”) Practice. He is a member of the firm’s Tax Advisory Group based in the Mid-Atlantic Region. Shane has nearly a decade of experience with SALT consulting, controversy and compliance services. He is one the most experienced SALT consultants in the Northeastern United States having worked at Big 4 accounting firms and performed services to Fortune 500 companies in the Greater New York City, Philadelphia and Pittsburgh areas. Shane is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants.
Chris is a Principal in the Naples, Florida office of HBK CPAs & Consultants and has been with the firm since 1998. He is a member of HBK’s Construction Industry Group and received the designation of Certified Construction Industry Professional (CCIFP) from the Institute of Certified Construction Industry Professionals, Inc. (ICCIFP). ICCIFP is a not-for-profit corporation established to promote the highest standards of construction financial management through the credentialing of construction financial professionals. He is a member of the Florida Institute of Certified Public Accountants (FICPA) and the American Institute of Certified Public Accountants (AICPA).