Posted by Simon Hase, CPA

For Businesses: Work Opportunity Tax Credit

For Businesses: Work Opportunity Tax Credit

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.

What is the Work Opportunity Tax Credit?

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.”

Who are the “Target Groups”?

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:

  • Veterans who have served in active duty for at least 180 days or who have been discharged and released because of a service-related disability and have not just come off of active duty—they have to have been out for over 60 days if they were in for over 90 days. Certain other requirements may also apply in some circumstances. A tax preparer can help you determine if you have any employees who qualify for this particular tax credit.
  • Those who qualify for short-term Temporary Assistance for Needy Families (TANF) and have received benefits for any 9 months in the 18-month period before the hiring date. Those who have receive long-term TANF benefits may also qualify.
  • Those between ages 18 to 39 who are a member of a family that received Supplemental Nutrition Assistance (SNAP) benefits (food stamps) within the past 6 months prior to the hiring date.
  • A 13 to 39-year-old who lives in a Rural Renewal Communities or an Empowerment Zone. Empowerment zones and Renewal Communities are certain rural and urban areas that are considered “distressed” by the federal government. Those who live in these areas can have special benefits that are encouraged to spur economic growth and development.
  • Individual with disabilities that who is working toward completion or has completed rehabilitative services from a state-certified agency, the U.S. Department of Veteran Affairs, or an Employment Network under the Ticket to Work program.
  • Those have been convicted of a felony and who are hired within one year after the conviction or release date from prison.
  • Someone who receives Social Security Income benefits (SSI) for any month in the 60-day period before the hire date.
  • Youths who are 16 and 17 years old who work during the summer months and live within a federally designated empowerment zone.

How Much is the Credit?

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.

Simon Hase, CPA
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