As year-end quickly approaches, many Colorado businesses are investigating opportunities to take advantage of tax-saving strategies to reduce tax liabilities. Since the passage of the Tax Cuts and Jobs Act of 2017 (tax reform), and lowering of the overall corporate tax rate, many of the traditional tax credits and deductions have been phased-out. This has left many searching for incentives to leverage to optimize their tax position. The good news for Colorado businesses is they may still be able to take advantage of the Work Opportunity Tax Credit (WOTC) for hiring eligible individuals in key target groups. To help clients, prospects, and others to take advantage of the credit, Hanson & Co has provided a summary of key details below.
What is the Work Opportunity Tax Credit?
The WOTC is a federal tax credit available to employers hiring individuals from various target groups who have faced barriers to employment. In order to qualify, an employer must obtain certification an individual is a member of the targeted group before the credit can be claimed. To obtain certification, an employer must file a notice with the state workforce agency within 28 days after the employee’s start date.
What are the Targeted Groups?
In order to qualify for the credit, employers must hire qualifying individuals meeting the requirements outlined below, including:
- IV-A Recipient – This includes an individual who is a member of a family receiving assistance under a state plan such as Temporary Assistance for Needy Families (TANF). Note that in order to qualify assistance must be received in any 9-month period in the preceding 18-months prior to the commencement of employment.
- Ex-Felon – Qualifying individuals include a person who is hired within a year of being convicted of a felony or being released from prison for a felony.
- Qualified Veteran – This includes a veteran that meets any of the following conditions;
- Member of a family receiving assistance through the Supplemental Nutrition Assistance Program (SNAP) for at least 3 months during the first 15 months of employment.
- The individual has been unemployed for a total period of at least 4 weeks (non-consecutive is permitted for calculation), but less than 6 months in the 1-year period ending on the date of hire.
- A disabled veteran receiving compensation for a service-related disability. The start of employment cannot be more than one year after the discharge or release from active duty in the U.S. military.
- A disabled veteran entitled to compensation for a service-related disability who has been unemployed for a period of six months in the prior year, ending with the start of employment.
- Long Term Unemployment Recipient – This includes any individual that has been unemployed for more than 27 consecutive weeks at the date of hire and has received unemployment during the same time period.
- Vocational Rehabilitation Referral – This refers to an individual who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services.
- SNAP Recipient – This includes any individual that is between the ages of 18 and 40 and is a member of a family that received SNAP benefits for the previous 6 months, or for 3 of the last 5 months.
Additional qualifying individuals include those receiving supplemental security income, long term family assistance and summer youth employees.
What are the Credit Limitations?
The total credit amount is limited to the amount of business tax liability or social security tax owed. Businesses may apply the credit towards current year liability or applied as carryforward rules permit. For tax-exempt organizations, the limit is the total amount of employer social security tax owed on wages paid for the period the credit is claimed.
The Work Opportunity Tax Credit represents an opportunity for businesses to take advantage of the hiring decisions of individuals from the targeted group. Denver business owners should review their recent hires to determine if any meet the criteria outlined above. If so, it’s likely you will qualify for this credit. If you have questions about the WOTC or need assistance with a tax planning or optimization issue, Hanson & CO can help. For additional information call Denise Jordan at 303-388-1010 or click here to contact us.