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The WOTC is a Win-Win For Employees and Businesses

By | Tax Credits, Uncategorized | No Comments

Today’s businesses always seem to be facing complex tax issues as they try to keep pace with changing regulations. As a result, several credits and deductions that would benefit the company’s tax bill may be overlooked. The Work Opportunity Tax Credit (WOTC) is one such program that your business can qualify for. 

What is the WOTC?

The WOTC was enacted as a federal tax incentive program in 2015 to give employers tax credits to hire candidates with special employment needs. Initially signed in 1996, the act has been extended several times and is authorized until December 31, 2020.

The program is jointly administered by the Department of Labor and the Internal Revenue Service (IRS). State agencies oversee the certification progress to ensure that employers hire candidates who meet the WOTC tax credit criteria.

The Department of Labor has recently awarded additional WOTC grants to states experiencing backlogs in the program. 

WOTC grants employers a tax credit between $1,200 and $9,600 per worker from one of the targeted groups. These include veterans, ex-felons, vocational rehabilitation referrals, summer youth employees, as well as those receiving Temporary Assistance for Needy Families (TANF), and government assistance recipients. 

The reasoning behind this tax incentive is to assist persons who are often left behind job-wise. Employers who may hesitate to hire from this group can benefit from tax incentives to include them in their recruitment plans. 

Credit Requirements and Amounts

How much a company can receive in tax credits is largely dependent on which classification the worker is in, as well as their total earnings and hours worked. This credit can be claimed for two years for each eligible employee as follows:

  • Hired recipients enable employers to take the tax credit for up to two years. The first year’s tax credit claimed is 40%, up to $6,000 of the first year’s wages, once the employee has worked 400 hours. If the employee has worked between 120 and 400 hours, a 25% tax credit is taken. An exception to this is that long-term family assistance recipients enable employers to take 40% of qualified wages up to $10,000 and 50% of second-year wages up to $10,000. 
  • Employment of long-term family assistance recipients allows a 40% credit of the first year with qualified wages up to $10,000 and 50% the second year. 

IRS rules state that the WOTC must be applied against a tax liability. As in the case of general business credits, unused credit can be carried back one year and carried forward for 20 years. 

Applying For The WOTC

Businesses applying for the WOTC must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” on or before the applicant’s first day on the job.  Form 9061, The “Individual Characteristics Form,” must also be completed by the employer upon hiring the job candidate. Additional documentation may also be necessary to prove the applicant is part of a target group.

The forms are mailed to the state’s WOTC coordinator within 28 days of the employee’s first day on the job.  Once the state verifies the employee is WOTC-eligible, the company can take the appropriate tax credits. 

Employers can then claim the credit on Form 3800 against their income taxes, as detailed by the IRS. 

Incentax can assist your business in identifying and maximizing state and federal tax credits through a streamlined process. Our team of experts evaluates programs and incentives the business is eligible for to maximize returns. Contact us to start taking advantage of tax credits to increase your company’s bottom line. 

hiring manager explores WOTC

Does My Business Qualify for the Work Opportunity Tax Credit?

By | Tax, Tax Credits, Uncategorized | No Comments

The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to benefit businesses that hire individuals who are in “targeted groups” that have historically found it difficult to obtain employment. The WOTC benefits both employers and employees as it helps people in difficult circumstances find jobs. As an employer, you can hire as many qualified employees as you want. The IRS and Department of Labor have complete information about the WOTC.

Obtaining Certification For a Work Opportunity Tax Credit

Pre-Screening

Before you can claim this tax credit, you must obtain certification that the person you’ve hired is a member of one of the targeted groups listed below. The first step is to file Form 8850, a pre-screening form within 28 days of the eligible employee starting work.

Limitations on Credits

The amount of the credit is limited to business income tax liability or the amount of social security tax owed.

Claiming the Credit

Depending on your status as a taxable employer, tax-exempt employer, or tax-exempt organization, you may need to fill out Form 5884 as well as Form 3800, which is for General Business Credit.

What are the Targeted Groups?

The Internal Revenue Service provides guidelines regarding who qualified as a member of a targeted group. For you to be eligible for this tax credit, you’ll have to hire people from one or more of these groups.

Long-Term Unemployed

A qualified long-term unemployment recipient is someone who has been unemployed for at least 27 consecutive weeks. To qualify, they must have received unemployment benefits for at least part of this period.

Ex-Felon

A qualified ex-felon is someone who is hired within a year of being convicted of a felony or released from prison after serving time for a felony.

Recipient of Long-Term Family Assistance

A long-term family assistance recipient is a member of a family who fits into one of several categories. They must have received assistance under an IV-A program for at least the last 18 months; for 18 months beginning after 8/5/97, or they are no longer eligible for this assistance because a state or federal law limited the maximum time they could receive these payments. For the latter, cessation of payments must have been within the last 2 years.

Designated Community Resident

A Designated Community Resident (DCR) must be between the ages of 18 and 40, reside in an empowerment community, an enterprise community, or a renewal community. These are all federally designated locations with high levels of poverty and economic distress. They must remain in one of these areas after being hired.

Supplemental Security Income Recipient

A qualified Supplemental Security Income (SSI) Recipient is someone who has received SSI benefits within 60 days of being hired.

Vocational Rehabilitation Referral

To qualify as a vocational rehabilitation referral, someone must have a physical or mental disability and presently or previously receiving services from a Department of Veteran’s Affairs program, an Employment Network Plan under the Ticket to Work program or a state plan approved under the Rehabilitation Act of 1973.

Supplemental Nutrition Assistance Program (SNAP) Recipient

Qualified SNAP recipients are between the ages of 18 and 39. They or a member of their family must have received SNAP benefits for 6 months or for a minimum of 3 of the last 5 months.

Summer Youth Employee

A qualified summer youth employee must be at least 16 and under 18, employed only between May 1 and September 15. They must also reside in an Empowerment Zone, Renewal Community, or a Renewal Community.

The WOTC Can Help Your Business Save on Taxes

The WOTC can help businesses save money on taxes while also providing jobs to people in targeted groups. If you want to claim this credit, make sure you hire employees who qualify. If you need help understanding the WOTC or any other tax credits that could benefit your business, you may want to consult with a professional.

The tax credit experts at Incentax help businesses take advantage of all possible tax credits. To learn more about our services, contact us.

sb 1447 hiring employees covid

What California Business Owners Should Know About SB 1447

By | Tax, Tax Credits, Uncategorized | No Comments

Those of you with a business in California know all too well about COVID-19 wreaking havoc on keeping things afloat. There’s good news, though: if you still have not experienced a turnaround in your business due to the virus, some tax credits are now available to help you.

One bill passed in California this fall is SB 1447, or a $100 million hiring tax credit for small businesses. A lot of business owners are already taking advantage of this to help them get back on track, including those who had to let employees go.

What do you need to know about this new tax credit? Take a look at the details and how to use it to your advantage to avoid further crisis.

SB 1447 Explained

SB 1447 is defined as a small business hiring credit to give tax credits if employers hire more employees throughout 2020. It applies to the tax year beginning this year and going through January 1, 2021.

For businesses like yours, it helps save you exponential money if you need more employees to keep your business operating optimally. You might have held off hiring more employees since spring out of fear of the future tax burdens.

Three California Democrats put this bill in motion: Sen. Steven Bradford, Sen. Anna Caballero, and Assemblymember Sabrina Cervantes. It was just one part of California’s recent laws put in place to help the business community bounce back after COVID-19 hardships.

These legislators noted a sobering fact before getting the bill passed: Small businesses suffered a 21.5% loss of jobs earlier in the year. This new bill brings major relief, even if you need to know a few more things to qualify.

Are You a Qualified Small Business Owner?

To qualify for this tax break, you need to fall under two guidelines:

  • You’ve employed fewer than 100 employees since December 31, 2019.
  • You had a 50% reduction in gross receipts between April 1, 2020 and June 30, 2020.

Keep in mind the credit is capped at $100,000 per qualified small business owner. When you hire new people, the new employees need to be paid qualified wages and not paid through the Personal Income Tax law or the Corporation Tax law.

These provisions are just the basics. Calculating your tax credits has specific rules you need to look at more carefully. One thing to note is any new hires working full-time can not work for you more than 167 hours per month.

Calculating Your Tax Breaks

To figure the tax break you get back, know you receive $1,000 for each net increase in qualified employees. You have to compare your average number of employees for the 2nd quarter of this year with the average number you had between July 1 and November 30.

Another great thing to consider with this new bill: You can apply your credit against qualified sales and use taxes. If you are a retailer, this is a major benefit when you have a lot of other tax burdens annually.

The aggregate amount of credit available will also have a cap at $100 million, if covering the majority of California’s hurting small businesses.

What will the tax benefits really be, though? Will it lead to a brighter future for California’s small businesses? On a national scale, many small businesses likely wish for the same.

Bringing New Lifeblood to the Small Business Community

When California Governor Gavin Newsom signed the bill back in September, he said: “This is really about the lifeblood of California’s economy, it’s about a sense of pride and spirit that we all have. This is about the California dream.”

Now available as a tax credit for the next five years, you can bring your business back from the brink. This tax bill joins an exclusion of federal Paycheck Protection Program loans from gross income tax filings, giving Californian businesses further breaks.

Contact us at Incentax LLC so we can help educate you on the many tax breaks available to businesses today.