HOW TO HIRE QUALITY WORKERS IN TIGHT JOB MARKET
Strategy That Includes Significant Tax Savings
It’s no secret … unemployment is at a record low. That’s great for Americans who are now enjoying good jobs … and challenging for employers seeking to attract and recruit quality workers. Full employment means a diminished pool of qualified job candidates.
That said, there is a largely untapped source of workers who, when hired, bring with them significant tax benefits to help new and existing small businesses. That group includes long-term unemployment recipients and other categories of workers with employment barriers.
Tax relief benefits are delivered through the Work Opportunity Tax Credit (WOTC) … income tax relief that encourages employers to hire designated categories of workers who face significant hurdles to becoming gainfully employed.
We’ll talk about the potential tax savings in a moment, but first a review of the ten categories of WOTC-eligible workers.
- Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
- Unemployed veterans, including disabled veterans
- Ex-felons
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Food stamp (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients.
The Work Opportunity credit is generally based on wages paid to eligible workers during the first two years of employment. Eligible businesses claim the WOTC on their income tax return. The intent is to encourage business investments that are considered crucial to boost economic development.
Here’s the real value of a tax credit. The best way to describe tax credits is in contrast to what most taxpayers understand … tax deductions. Tax deductions reduce the amount of your income subject to tax. Tax credits directly reduce the tax itself.
For example, assume your business spends $5,000 on equipment or some other item that results in a tax deduction. That will reduce your taxable income by $5,000. In a 25% tax bracket, you would save $1,250 in taxes.
Now compare that with a $5,000 tax credit. That amount is subtracted from the amount of tax owed as opposed to an offset to income … as is the case with a tax deduction. Result: Your tax bill is reduced by the full $5,000 tax credit.
Essentially, the WOTC is a business entitlement subsidy that may be enjoyed by any company that meets the legal criteria. To qualify for the credit, an employer must first request certification by filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
Takeaway
Business owners … looking to save money, reinvest in your business and grow the value of your most valuable business asset – your people? Qualifying for the WOTC will deliver on all those plusses.