Is your business taking advantage of all of the tax credits available to you? There are tax credits available at both the federal and state level that are designed to reward employers who hire certain types of employees—for example, workers who, for reasons that are unrelated to their skill set or qualifications, have a hard time gaining employment. By hiring these workers, you are supporting the economy, and you can be rewarded for it!
The Work Opportunity Tax Credit (WOTC)
The WOTC is a federal income tax credit that is available to businesses that hire certain categories of workers who face significant barriers to employment.
Eligible employees include:
- Unemployed veterans (including disabled veterans)
- Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
- Designated community residents living in empowerment zones or rural renewal counties
- Summer youth employees living in empowerment zones
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients
Businesses who hire eligible workers between January 1, 2015 and December 31, 2019 may claim the credit, as long as the eligible worker completes at least 120 hours of work, and is not related to the employer or business owner. In addition, eligible employees must be certified by a designated local agency by their start date, or shortly thereafter.
In general, the credit is equal to 40% of eligible wages paid (up to $6,000) to an employee during the first year of their employment, for a maximum credit of $2,400 per employee.
Some exceptions to this rule include:
- Summer youth employee - 40% of eligible wages up to $3,000, for a maximum credit of $1,200 per employee.
- Long-term family assistance recipient - 40% of eligible first-year wages up to $10,000, for a maximum first-year credit of $4,000; plus 50% of eligible second-year wages up to $10,000, for a maximum second-year credit of $5,000.
- Veterans - 40% of eligible first-year wages up to:
- $12,000 (for a maximum first-year credit of $4,800) for a veteran who is certified as being entitled to compensation for a service-connected disability, and who is hired no more than one year after being discharged or released from active duty.
- $14,000 (for a maximum first-year credit of $5,600) for a veteran who is certified as being unemployed for at least six months during the one-year period ending on the hiring date.
- $24,000 (for a maximum first-year credit of $9,600) for a veteran who is certified as being entitled to compensation for a service-connected disability and who was unemployed for at least six months during the one-year period ending on the hiring date.
Massachusetts recently established a tax credit for businesses who hire and train apprentices, which can be applied against corporate excise tax and personal income tax liability.
Taxpayers can claim this credit in tax years beginning after 2018.
To qualify for the credit, employers must employ an apprentice in Massachusetts for at least 180 days in the tax year in which they claim the credit; register as an apprenticeship program sponsor; and enter into an apprenticeship agreement with their employee.
The employer must also train the apprentice in:
- Computer occupations
- Health technologist or technician occupations
- Healthcare support occupations
- Product manufacturing occupations
The credit is equal to the lesser of $4,800 or 50% of the wages of the apprentice, and the employer can claim a second credit if they continue to employ the apprentice for a second year.
Do you have questions about whether you qualify for employer tax credits? Leave a comment below, or feel free to contact me directly. I'm happy to discuss your specific situation and help you determine how to best minimize your tax liability.