With the cost of doing business consistently on the rise combined with the increasing difficulty to find/retain great employees, there is no better time to pursue employment-based tax credits. There are both federal and state employment-based credits available that can help businesses offset income tax liability. Some of these programs are based on the creation of net new jobs, while others are offered to employers for employing individuals from specific target groups. The most popular of these programs is the Federal Work Opportunity Tax Credit (WOTC). The WOTC is a federal tax credit program that incentivizes employers to hire individuals who typically face barriers to employment such as ex-felons or Veterans. The tax credit can range from a maximum of $1,200 to $9,600 for each qualified new hire depending upon the new hire’s target category and there are currently 14 different target categories under which an employee may qualify. Many states also have targeted employment credits with similar qualification criteria as the WOTC that are commonly referred to as “WOTC piggy-back credits”.
Participating in credit programs like the WOTC program can minimize a company's tax liability and offset the high capital costs associated with new, expanding, or relocated business sites. These credits can also enhance cash flow to your business and can be used to offset the need for cutbacks and allow funding for other special projects. These credit programs can further allow the HR and tax departments to become revenue generating areas.
Employees can benefit from employment-based credits in several ways. For some individuals, gaining employment through the assistance of tax credit programs, like the WOTC, removes the need for assistance from government aid programs like the Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP). Because employment-based tax credits can help offset some of the costs of doing business, the credits can be used to fund special projects that benefit employees or perhaps even provide raises for many employees.
Participating in federal and/or state employment-based tax credit programs can provide a win-win outcome for both employers and employees. Not only can your business benefit from reduced income tax liability thereby freeing income to spend on other projects, but your employees can benefit from gainful employment and/or special benefits funded by the tax savings generated from the participation of employment-based tax credit programs.
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