Tax credits provided by the federal government are a great incentive for small and medium business to hire and retain talent.
Tax credits provided by the federal government are a great incentive for small and medium business to hire and retain talent. For businesses interested in helping workers who have faced challenges getting back on the payroll, there are a variety of tax credits and incentives available to help. The best place to start is with small business hiring credits.
Small Business Hiring Credits
The most commonly known hiring credits fall under the Work Opportunity Tax Credit. These credits offset some of a businesses’ tax or social security liability. The credit is aimed to help veterans and targeted groups who have had significant barriers to employment get back into the workforce. There are several types of small business hiring credits available.
1. WOTC for Veterans
WOTC has a host of options for business to hire veterans. For veterans who have been injured or disabled in the line of duty business can receive up to $9,600.00 in credits. For non-injured service members, credits can go as high as $2.400.00. The IRS provides specific details on how the credits can be earned based.
WOTC also covers non-military personnel in several categories:
2. Qualified Long-Term Unemployment Recipients
A qualified long-term unemployment recipient has been unemployed for at least 27 consecutive weeks at the time of hire. They may have received unemployment compensation during some or all or this time period.
To qualify, an ex-felon must have been convicted of a felony or released from prison after a felony conviction within 1 year of the hire date.
4. SSI Recipients
Supplemental Security Income recipients qualify for a tax credit if they have received payment from Social Security for any month ending within 60 days of their hire date.
5. Designated Community Residents (DCR)
DCRs are new hires between 18 and 40 years of age who live in an empowerment zone, enterprise community or renewal community and continue to live there after they are employed. HUD provides detailed maps for covered locations in every state.
6. Vocational Rehabilitation Referrals
Hiring a person with a mental or physical disability may also be eligible for tax credits. To qualify they will have been referred to the employer while receiving or after completion of rehabilitative services that are approved under a state plan covered under the Rehabilitation Act of 1973, an Employment Network Plan under the Ticket to Work program, or a program carried out by the Department of Veteran Affairs.
7. Qualified IV-A Recipients
For members of families who have been receiving assistance under a state TANF (Temporary Assistance for Needy Families) Plan for any 9 month period in the past 18 months before their start date, tax credits are also available.
8. SNAP Recipients
Supplemental Nutrition Assistance Program, or SNAP recipients, also qualify for the credit if they are between 18 and 40 years of age, are a member of a family who has received SNAP benefits during the past 6 months or at least 3 of the last 5 months before their hire date.
For these categories of non-military hires (numbers 2-8), tax credits of up to 40% of eligible first-year wages paid to an employee are available, to a maximum of $6,000.00, based on hours worked:
- Employees who work at least 120 hours and no more than 400 hours per year: Tax credits of 25% of first-year wages up to $6,000.00 or $1,500.00
- Employees who work 400 hours or more per year: Tax credits of 40% of first-year wages up to $6,000.00 or $2.400.00
9. Summer Youth Employees
Qualified summer youth employees are at least 16 but under 18 on their hire date or date of birth (whichever is later). These staffers are employed no earlier than May 15 and no later than September 1. They must reside in an empowerment zone, enterprise community or renewal community.
Summer youth credits of 40% of the first year wages up to $3,000.00 or $1,200.00.
10. Long-Term Family Assistance Recipients
To qualify under the long-term family assistance category the new hire must be a member of a family who has received assistance under an IV-A program for at least 18 months prior to their hire date; started IV-A benefits after 1997 and received them for at least 18 months but has not collected the benefit for no more than 2 years after the last 18 month period of collection; or ceased to be eligible under a federal or state IV-A assistance program within 2 years of the hire date because they reached the time limit for benefits to be paid.
Long-term family assistance recipient credits apply for those who work at least 400 hours per year:
- Tax credits of 40% of first-year wages up to $10,000.00 or $4,000.00
- Tax credits of 50% of second-year wages up to $10,000.00 or $5,000.00
Claiming WOTC Credits
While there are limits on the amount of small business hiring credits you receive per employee, there is no limit on the number of employees eligible for credits under the WOTC. Every staff member qualified entitles your business to a separate tax credit.
But before your business can claim the tax credit for a WOTC hire, certification must be made. File Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with your state workforce agency within 28 days after the eligible worker begins work. Your agency may be able to help you pre-qualify potential hires, as well.
Small Business Hiring Tax Credits Not Under WOTC
11. Research Tax Credit
Is your business involved in research or experimentation that is technological in nature? Some funds spent on R&E are deductible or eligible for tax credits, including the cost of hiring and retaining employees and contractors. The IRS has strict guidelines for R&E deductions and credits, so make sure your costs qualify before you apply for the credit.
12. Disabled Access Credits
If you spend any money making your business more accessible for new hires or employees with disabilities you may be eligible for a tax credit. The IRS has instructions on what types of expenses qualify, but the list is extensive. Business can receive a tax credit of 50% of their expenses up to $10,250 or $5,125.
13. Empowerment Zone and Renewal Community Employment Credit
If you hire someone who lives and works in a low-income area, you might qualify for this tax credit. Business can receive a credit of up to $3,000 for each full or part-time employee hired who lives in an EZ or RC. The credit equals up to 20% of the first $15,000 in wages. To find these locations, see HUD’s website.
Helping Americans get back to work is the impetus behind these small business hiring credits, and for many businesses, the costs that are offset are only part of the benefit. Many who use these tax credits find they’ve hired committed staffers anxious to work. Can your business benefit from tax incentives and help someone get back to work?