With their constantly evolving rules and regulations, employment tax incentives are difficult for many businesses to understand. However, these credits provide significant savings when you work toward increasing eligibility and capturing benefits for new hires.
Establishing a foundational knowledge on federal and state employment tax incentives is helpful as you consider incorporating these credits in your tax savings strategy. The following information provides an introduction to federal and state tax credits and incentives your business may qualify to claim.Enterprise Zones
Enterprise zones are geographic areas in need of revitalization designated by the state or federal government. Companies located in these regions qualify for numerous subsidies.
State and federal governments have varying definitions of enterprise zones, and states may even create unique names for these regions, such as New York’s “Empire Zones” or Michigan’s “Renaissance Zones.”
Individual states determine the criteria for a region to be classified as a state enterprise zone. Each state’s program is different.
In order for an area to qualify as an enterprise zone, it must meet the state’s definition of distress, meaning it has some or all of the following characteristics:
- High rate of unemployment
- High rate of job loss
- Low income levels
- Low education levels
- Population decline
- High vacancy rate of buildings
Federal enterprise zone incentives include large amounts of training funds and offer financial assistance to qualified employees outside of the workplace. These benefits are intended to help workers keep their jobs and encourage community involvement.
Military Background
State tax incentives for hiring veterans vary widely in terms of the value of the credit awarded. For example, in New York, businesses may earn up to $5,000 for hiring a qualified veteran and up to $15,000 for hiring a veteran who is disabled. Arizona, on the other hand, provides a $2,000 credit for unemployed veterans and a $4,000 credit for disabled veterans.
Additionally, the time frame in which savings are awarded is different based on each state. New York’s benefit is a one-time credit, while Utah offers a non-refundable monthly credit of $200 in the first year and $400 in the second year of a qualified veteran’s employment.
The federal Work Opportunity Tax Credit (WOTC) program also provides companies with tax savings for hiring veterans. Businesses may qualify for this employment tax incentive when an unemployed veteran they hire meets some of the following qualifications:
- Received unemployment compensation
- Member of a family that is receiving or recently received food stamps
- Has a service-connected disability
Barriers To Employment
Federal employment incentives are available to companies that hire target groups of individuals who face barriers to employment, including:
- Food stamp recipients
- Temporary Assistance For Needy Families (TANF) recipients
- Qualified ex-felons
- Vocational rehabilitation referrals
- Supplemental Security Income (SSI) recipients
- American Indians
Many state-level programs also offer businesses employment tax credits for hiring similarly qualified employees within the state. These incentives are designed to provide jobs and promote the growth of state economies by attracting more businesses.
Employment incentives are complex, especially given the variations in rules between different states and the constant debating among government officials about qualification requirements.
If you are pursuing state or federal employment tax credits, it is wise to stay current with changing tax regulations. Expert online resources are available from many tax companies, government agencies and news organizations. Ensure your tax savings strategy is consistent with current rules as you work toward generating more revenue for your business.
Are you interested in learning more about profitable tax incentives that may be applicable to your company? Discover what you need to know about capturing location-based tax credits.
