Employment tax credits are a valuable business incentive many qualified businesses fail to take advantage of. Between the various federal and state employment credits, businesses of all sizes have the opportunity to pursue these tax solutions. 

Without the help of a tax expert, it is difficult for your clients to know what tax incentives they qualify for. Conducting research on tax credits and learning more about which of your clients qualify for employment tax credits is a beneficial decision for CPA firms interested in helping businesses improve their tax budget. 

Learn about the five most important federal and state employment credits you must capture for your clients. 

The New Employment Credit is available for qualified taxpayers in California who hire a qualified full-time employee and pay wages for work performed. In order to claim the credit, the employer must have a net increase in the total number of full-time employees in California. 

Employees who qualify your client’s business to claim this employment tax credit include: 

• Individuals unemployed for six months or more who have not completed a degree program
• Individuals unemployed for 6 months or more who completed a degree program more than 12 months prior to being hired
• Veterans separated from the armed forces within 12 months
• Recipients of the federal Earned Income Credit in the previous year
• Individuals who have been convicted of a felony
• Recipients of CalWORKS or county general assistance 

2. The Work Opportunity Tax Credit (WOTC) 

The purpose of the WOTC is to encourage businesses to hire people who are members of a target group and provide a federal employment credit to employers who hire these individuals. 

Members of target groups frequently face barriers to employment, which is why hiring a WOTC-qualified employee often results in the reward of significant tax savings. These groups include individuals receiving public assistance or food stamps, living in areas of high unemployment and who have a military background. 

3. The Empowerment Zone Employment Credit 

The Empowerment Zone Credit provides businesses a tax incentive to hire and retain employees who live in an empowerment zone, or an area that is in need of revitalization. The credit is equal to 20% of the first $15,000 of wages paid to the employee. 

Both full-time and part-time employees qualify, and the credit is renewable each year. There is no limit to the number of employees a business is able to claim, making this a valuable tax solution for many qualified companies. 

4. The California Competes Tax Credit (CCTC) 

This state employment credit is available to businesses that locate, expand or remain in California. If your client’s company creates well-paying jobs in California, they may be eligible for the California Competes Tax Credit. 

California Competes credits have been as low as $20,000 and as high as $6 million. As the name suggests, businesses compete with one another for the funds available through the CCTC. However, 25% of the pool is reserved for small businesses, so companies of any size are able to pursue this tax incentive.

5. The Indian Employment Tax Credit 

One of the most frequently overlooked federal employment credits is the Indian Employment Tax Credit. This credit encourages businesses to hire registered Native Americans who live on or near an Indian reservation to work for an employer on that reservation. 

Criteria that qualifies businesses for this incentive include: 

• The company hires employees enrolled as members of a Native American tribe or who are the spouse of an enrolled member.
• Services performed by employees are performed within an Indian reservation.
• The principal place of abode for the qualified employee is on or near the reservation where the services are provided. 

Pursuing tax solutions such as employment tax credits for your clients is a beneficial way to help clients save on tax costs and improve their budgets. While state and federal tax credits are overlooked by many CPA firms, you are able to provide these services with the help of an experienced tax expert. 

Consulting a tax advisor is a valuable first step towards helping your clients maximize tax savings. Ensure your CPA firm is not missing tax solutions for your clients by speaking with a tax expert today. 

Ready to learn more about other tax incentives your CPA firm may be overlooking for clients? Schedule a free, 30-minute consultation with a tax expert at Corporate Tax Incentives.