The United States often uses tax deductions, credits, or other tax benefits to encourage certain social policies that it deems desirable. For example, they may want married people to file taxes together, which is why there are so many tax disadvantages to filing as married filing separately. This is just one of the many examples of this type of encouragement. Another example is the Work Opportunity Tax Credit. This credit is available to certain employers who employ people who have certain attributes.
Many small business owners are unaware of this credit, so it is important to speak with a tax professional at Kaufmann Advisors for more information about this credit and to see if you qualify. You will need to gather very specific information about your employees when they are hired for this credit, so read on before you make a hiring decision for the best results.
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses who hire certain individuals. These individuals are from what they call “target groups.” These people have been recognized has having significant barriers in the hiring process. Sometimes employers may not want to hire these types of people, so the credit is supposed to give them extra incentive to do so. This credit is about more than just diversity, as is easy to see when you consider who belongs in each “target group.”
The idea behind the credit is that by offering those within these target groups an opportunity to work, they will become less dependent on the government for aid. They will also become more self-sufficient because they have a steady income. They can also contribute to the country by paying taxes on what they earn—something that is generally not done when their income comes from some sort of welfare program.
The target groups contain a very specific set of individuals. They include:
Usually, employers can take a credit for either 25 percent or 40 percent of an employee’s first-year wages, depending on the type of employee involved. Usually, employees must also work a certain amount of hours within the year for them to qualify the employer for the credit. Each target group has a specific maximum amount for the credit, so that will vary as well.
The maximum amount for any employee is $9,600, and the lowest maximum is $2,400. Most of the employees involved are in the $2,400 range.
As of right now, the Work Opportunity Tax Credit is in hiatus for 2015, but that means they are still accepting applications for the credit. Employers just cannot fully process their applications until Congress decides that they will continue the WOTC. A similar procedure took place in 2014.
For more information about this credit or any other credit that may affect businesses, speak with the experienced tax professionals at Kaufmann Advisors. We can help your business get every credit it should. Call 415-746-9290 or use the Contact button below to get started.