Get a tax credit (with big tax savings) when hiring from a “target group”
Business hiring increased in 2017, and more is planned for 2018. If you are hiring this year, you may be eligible for the Work Opportunity tax credit (WOTC), should your hires consist of members of a “target group.” If the hires you made in 2017 qualify (and you got the appropriate certification), you can claim the WOTC on your 2017 tax return.
Even if you don’t qualify for 2017, consider the WOTC in your new hire plans for 2018. Though the House’s version of the Tax Cuts and Jobs Act recommended its removal, WOTC survived the final version that was signed into law in December. WOTC continues to be of use for 2018.
“Target groups,” defined
Target groups comprise:
- Qualified persons who have been without a job for 27 weeks or longer
- Designated community residents who live in Empowerment Zones or rural renewal counties
- Qualified veterans
- Anyone who receives long-term family assistance
- Qualified recipients of Temporary Assistance for Needy Families (TANF)
- Those who are part of the Supplemental Nutrition Assistance Program (SNAP)
- Qualified ex-felons
- Recipients of Supplemental Security Income benefits
- Summer youth employees, and
- Vocational rehabilitation referrals for persons that sustain an employment handicap (due to a mental physical handicap).
An important step to take before you can use the WOTC is to get a “designated local agency” (DLA) to certify that the person you have hired is indeed a member of a target group. You then submit to the DLA the IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.” You must do this prior to the person’s 28th day of employment with you. If you hired an individual from a target group in 2017 but did not get the certification, then unfortunately, you will not be able to claim the WOTC on your 2017 return.
A potentially valuable credit
Provided that you qualify for the WOTC as an employer, you then claim it as a routine business credit against your income tax. The extent of the credit hinges on three points:
- The target group of the hired individual
- Earnings issued to the new hire, and
- The total hours he or she worked during the first year on the job
The highest credit you can typically earn per member of a target group is $2,400. However, for certain veterans, you can receive as much as $9,600.
The WOTC has no limit to the number of eligible candidates an employer can hire. For example, if you employ 10 persons from target groups that meet the requirements for the $2,400 credit, the combined credit would be $24,000.
Keep in mind that credits don’t just decrease the amount of taxable income, they cut down your tax bill dollar-for-dollar. The $24,000 tax credit becomes bona fide tax savings.
Offset hiring costs
When you hire suitable new workers, the WOTC can yield considerable tax savings, counteracting some of the hiring expenses. Call us at 949-860-9902 or click here to contact us for more information.