In my 47 years in the tax industry, I've survived the worst of times and created 3 businesses, employing thousands of people.
To date, my unofficial count of millionaires-created stands at 800.
That's why headlines like this one keep me up at night: Census figures show more than one-third of Americans receiving welfare benefits. In fact, newly released Census data shows nearly 110 million Americans are receiving government assistance of some kind.
If you're an entrepreneur, know that you can do more than just feel sorry for those who are less fortunate. You can put them to work AND receive a tax credit.
Yes, credit, not just a deduction, meaning a dollar-for-dollar benefit on your taxes.
Let me introduce you to the Work Opportunity Tax Credit (WOTC). This is a federal tax credit available for hiring individuals from certain target groups who have consistently faced significant barriers to employment. That includes our nation's veterans.
Thanks to the Protecting Americans from Tax Hikes Act of 2015 (Path Act), there have been a few key changes:
- WOTC has been renewed retroactively to January 1st, 2015.
- WOTC has been extended for 5 years through December 31st, 2019.
- A new target group has been added, which is the "Long Term Unemployment Recipient."
What all of this means is that employers can hire eligible workers from the following target groups and receive a tax credit for providing this work opportunity:
- Unemployed Veterans (including disabled veterans)
- Temporary Assistance for Needy Families (TANF) Recipients
- Food Stamp (SNAP) Recipients
- Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties
- Vocational Rehabilitation Referred Individuals
- Supplemental Security Income Recipients
- Summer Youth Employees (living in Empowerment Zones)
How This is Calculated (and How it Also Benefits You)
The maximum tax credit depends on the wages you pay to the new hire, the new employee's target group and the number of hours worked during the first year of employment.
- Employers generally can earn a tax credit equal to 25% or 40% of a new worker's first-year wages, up to the maximum for the target group to which the employee belongs.
For example, let's say you hire a disabled veteran (one who is entitled to compensation for a service-connected disability) who has been unemployed for 6 months. You, as the employer, are eligible for a maximum tax credit of $9,600!
- The number of hours matters. For all target groups except the long-term TANF (Temporary Assistance to Needy Families) recipient, employers will earn 25% if the employee works at least 120 hours, and 40% if the employee works at least 400 hours.
- For the long-term TANF target group, employers earn 40% if the employee works at least 400 hours in the first year, and 50% if the employee works at least 400 hours in the second year. This is helping low income families and giving you a tax break as their employer. To apply, talk to your tax pro about completing IRS form 8850, as a first step.
I've always believed that small business is the engine driving the American economy. If one-third of all Americans need assistance, WOTC is one way to "Be the Change" and get a tax break. Win/win.
Enjoy the entrepreneurial journey.