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WOTC Tax Credits

Why Hiring an Ex-Felon Might Be the Right Move in 2020

With the national unemployment rate at a low, the employee pool may look like it is getting sparse. However, that may be because you’re not looking in the right employee pool.

2020 should be the year you consider hiring ex-felons.

For many employers, it’s tough to think about trusting an ex-felon as someone who will help your business succeed, but the federal government is doing everything it can to help employers see that ex-felons can be an asset instead of a hindrance.

The Work Opportunity Tax Credit (WOTC)

The government has created the WOTC for companies willing to hire individuals with employment barriers, such as ex-felons. If your business employs an ex-felon you can qualify for the WOTC. We wrote a whole blog post about WOTC here.

The cool thing about a tax credit is that you receive a dollar for dollar match on your taxes up to a certain amount. That means if you pay that employee $1,200 in 2020, you should be allowed to deduct that $1,200 from your taxes.

The Federal Bonding Program

To make employers feel safer about hiring ex-felons, the federal government has created a Federal Bonding Program. The program is designed to protect the employer against loss if an employee that is an ex-felon commits a fraudulent or dishonest act.

The bonds are free and are part of an incentive to hire ex-felons. There’s a $5,000 limit per employee with a $0 deductible. The bond covers the employee’s first six months of employment with your company.

For more details, you can visit the Bonds 4 Jobs website.

City and State Benefits

In addition to the national benefits being offered for hiring ex-felons, some cities and states are also offering incentives to businesses that hire people coming out of incarceration. The City of Philadelphia, for example, offers a cash incentive to any business that hires someone coming out of prison, provided the company meets the eligibility requirements.

Be sure to look into what your city and state offer businesses that hire ex-felons. You could see more rewards than just the federal ones.

States are Starting to Recognize Unfairness in Occupational Licensing

You may think that because your employees need a special license to do their work, ex-felons are out of the question. Until recently, most states have immediately rejected license applications for ex-felons. That’s changing.

More and more states are starting to realize that licenses to ex-felons should and can be handed out on a case by case basis. Check your state to see if they offer waivers for occupational licenses. The one thing holding you back from hiring an ex-felon may not be an issue at all.

Major Companies See the Benefit

More and more major corporations are seeing the benefit of considering ex-felons in hiring practices. Many companies have removed the question about an applicant’s criminal past from their applications. More still have promised to give a potential employee a fair chance before asking about criminal history.

According to the website, Jail to Job, major corporations like Walmart, Google, Coca-Cola, Best Buy, Starbucks, Target, and Under Armour have made the Fair Chance Pledge, a promise to hold off on criminal history questions until later in the hiring process.

It is possible that hiring an ex-felon is not an avenue that you want to pursue for your company, but it’s also possible you may find that some of the best employees you hire in 2020 will be ex-felons.

Disclaimer: The advice offered in this blog post is a generalization and may or may not work in your specific situation. Most specifically, the WOTC depends on the company, the employees and other factors. If you think you qualify for the WOTC or other tax credits, please contact Tax Credit Group so we can cater our advice to your situation.

10 Things Small Business Owners Can Do to Get a Head Start on Taxes

It’s hard to think about taxes when the deadline is so far away but now may be the best time to get to work on them. Late December and early January tend to be slow months for small businesses, which is why they’re a great time to get a jump on work that will pop up later down the road. You know you’ll have to deal with the taxes eventually, so why not start now?

Remember, the tax period usually refers to the calendar year, which means once 2019 is done those numbers are set.

Preparing for the Work Opportunity Tax Credit (WOTC)

If you’re claiming one or more employees as part of the WOTC, then there are some extra numbers that your tax accountant needs. He or she will need the total hours worked by those employees in 2019 and the amount you paid to all employees who qualify for the tax credit.

While you’re calculating out that number, don’t forget that you can receive the credit for 12 full months of employment, so if you have an employee that you hired on July 1, 2018, you can still claim six months of work in 2019.

Calculating what you paid in taxes

Another item you’re allowed to deduct as a small business owner is the amount you paid in employment taxes. Every paycheck, you’re paying out social security taxes, Medicare, federal and state disability. These payments are tax deductible.

If you have a person in charge of payroll, they will likely get these numbers for you. However, if you’re doing it yourself, it might be a good idea to run the numbers at the end of the year so you have them ready for your accountant come tax time.

Qualified Business Income

This is one you might want to talk over with your accountant, but changes to the tax code in 2017 created the opportunity for small businesses to deduct what’s called Qualified Business Income (QBI). That means you may be able to deduct up to 20 percent of your qualified business income.

C corporations and a few other small businesses do not qualify. If you want more details on QBI, the IRS has a longer write up here.

Vehicle expenses

A lot of small businesses use a vehicle, whether personal or company owned, to do work for the business. The cost of operating that vehicle is deductible. Remember, deductible means it’s a partial deduction from your taxes, not a dollar for dollar match like a tax credit. Still, every bit of savings counts.

You should have kept records throughout the year for the cost of gasoline, oil changes, etc. If not, get out the calculator and start digging through your records.

Your other option is to use the IRS standard mileage rate of 58 cents per mile in 2019. That rate covers the cost of gas, oil, and wear and tear on your vehicle. You’ll still need to go back and calculate all the miles you drove in 2019 to account for that 58 cents per mile.

Depreciation schedule

This is a chart that you should have already or that your accountant has worked out. If not, you may want to work with your accountant to create one.

A depreciation schedule should include all of the assets of your business such as machinery, equipment, and vehicles, when they were purchased and a schedule of how much you can depreciate per year. You can add any new purchases from 2019 to this schedule and make sure you have a new depreciation timeline for each item.

Rent

The IRS allows small businesses to deduct the rent they pay for property used as part of their business. This works on a smaller scale if you work out of a home office. It’s a quick calculation to do, but it’s a good one to get out of the way so you’re not trying to figure it out with the tax deadline looming.

Insurance

Just like rent, what you pay insurance it is also deductible. Make sure you’re tracking all the payments you make for insurances such as business, flood, fire, and vehicle.

Interest

Another calculation you can get out of the way fairly quickly is interest. The IRS will allow you to deduct interest expense as a business expense provided that money was borrowed for business activities.

Utilities

Another good item to get a jump on is calculating all the money you paid out in utilities last year. Everything from electricity to phone to internet to water and sewage is deductible.

Professional Fees

The money you pay to the pros like your lawyer and your accountant is also something you can deduct from your taxes. The IRS sees professional fees like other business operation expenses and so it tries to give you a break.

If you want to see a longer list of all the things the IRS allows you to deduct, you can check out Publication 529.

Disclaimer: These deductions and tax credits are items that almost all businesses can count on, but your specific situation may not be a typical one. That’s why talking to us here at Tax Credit Group or speaking with your personal accountant is a must. That is the only way you can be sure you’re getting the proper information for your specific situation.

Holiday Charitable Giving Advice for Small Businesses

As 2019 draws to a close, many companies are looking for ways to give back to their communities and maybe get a little tax advantage in return. But there are some things you should consider before you decide how much you’re going to donate and who you’re donating to.

Choosing the right charity

The first thing you want to focus on is choosing the right charity. You want to make sure the company you’re donating to is a nonprofit. Usually, nonprofits file under tax code 501(c)(3), which is the internal revenue code that allows for nonprofit tax exemption. These companies indicate on their website their 501(c)(3) status, so look around for it. If you can’t find it, the IRS has a database search that you can use to determine if the company you want to donate to files as a 501(c)(3).

Just because it’s a nonprofit, it does not mean that all the money you donate goes to the cause you’re choosing to support. You want to make sure that a large portion of the money you donate goes to the people the nonprofit is trying to help and not to administrative costs. Sites like Charity Navigator and the Better Business Bureau’s Wise Giving Alliance will help you see what percentage of every dollar a charity uses towards its cause.

After that, choose a charity that aligns with the beliefs of your company and your employees.

It’s a tax deduction, not a tax credit

Remember that when you donate to a charity, it’s considered a tax deduction not a tax credit. We have a whole article on the difference between a tax deduction and a tax credit here, but the basic idea is that a tax credit is a dollar for dollar write off on your taxes, while how much you receive as a tax deduction will vary based on your tax bracket.

It’s probably worth less than you think it is

If you’re looking to donate goods, remember you will never be able to deduct what you initially paid for the item. The IRS will only allow you to deduct what it calls Fair Market Value, in other words, what the item is worth after depreciation or use. The IRS website has more details on Fair Market Value here.

The other thing you want to consider is you need to have some proof that the item is worth what you’re writing off. For example, if you donate a car, then you need to use something like the Kelly Blue Book to prove that the car you donated is worth the amount you’re deducting. If you’re donating something else, you may need an independent appraisal before you choose a value to deduct.

How much should you give?

Business News Daily tackled this issue a few months ago and here are two things you should think about before you decide how much to donate:

  • “The tax benefit you receive will be based on how much you give and your business’s revenue.”
  • “Don’t donate an amount that will sink your business. Be smart as well as charitable.”

As we stated earlier, a tax deduction is much different than a tax credit. You will not receive a dollar for dollar break on your taxes, so you must understand that any donation must be money that you can afford to give to a charity without any promise of a return.

Talk to your tax adviser

Whether you donate $1 or $1,000, be sure you talk to your Certified Public Accountant or another tax specialist before you donate. The 2017 Tax Cuts and Jobs Act made the tax code more difficult to navigate in the area of charitable giving and you may not receive the level of deductions you anticipate unless you talk to a professional first.

How to Celebrate International Day of Persons with Disabilities

December 3, 2019, was International Day of Persons with Disabilities and it’s a good time to recognize your employees with disabilities and share with the rest of your team why disability does not define a person.

What is International Day of Persons with Disabilities?

International Day of Persons with Disabilities was proclaimed in 1992 by the United Nations General Assembly. The day was designated for December 3 of each year.

According to UN General Assembly resolution 47/3, the day “…aims to promote the rights and well-being of persons with disabilities in all spheres of society and development, and to increase awareness of the situation of persons with disabilities in every aspect of political, social, economic and cultural life.”

Why We Celebrate International Day of Persons with Disabilities

One of the main goals of International Day of Persons with Disabilities is inclusion.

According to the Southeast Americans with Disabilities Act Center, “A major focus of the Day is practical action to mainstream disability in all aspects of development, as well as to further the participation of persons with disabilities in social life and development on the basis of equality…promote public awareness of barriers to the full inclusion of persons with disabilities in their societies.”

How to celebrate International Day of Persons with Disabilities

The website, IDPWD.org, has a whole list of ideas for schools, businesses, and groups to recognize the day. It doesn’t matter if your business is big or small, there’s always something you can do.

Host a breakfast or brunch

Buy some breakfast and invite all your employees to enjoy the food. If you have the opportunity, invite an advocate or person with a disability to speak to the group while they eat.

You can do the same thing with a luncheon.

Offer a discount

If you’re a business that sells something, consider offering a discount to people with disabilities, their families, and their caregivers.

Host a fundraiser

If you have the means or the space, host a fundraiser for a local non-profit that helps people with disabilities.

Spread awareness

The IDPWD.org also suggests that you use your place of business or social media channels to spread awareness of International Day of Persons with Disabilities. Not everyone knows or realizes that the day exists or that it takes place on December 3 of each year.

The more you spread awareness; the more likely people are going to search out content to learn more about the day.

There’s also downloadable content on the IDPWD website that will help your business show its support for International Day of Persons with Disabilities. You can find it here.

Finally…

One of the biggest things you can do for International Day of Persons with Disabilities is take any action at all. Whether it’s simply making your employees feel special and appreciated or something larger like a fundraiser or luncheon.

Doing something is the first step.

Why Hiring Veterans is Better for Your Business

Transitioning out of the military and into the workforce can be tough for veterans. They find themselves confronted with a working world that does not understand the immeasurable skills and expertise that they bring to a business. It’s a hurdle that many veterans face as they leave the military and begin to focus on a new career.

So, here are a few items for you, as a business owner, to understand as you consider making a veteran the next addition to your team.

You’re hiring the military “can-do” attitude

The military goes to great lengths to train its members to see a goal, come up with a plan to achieve that goal, and then go out and accomplish it. When you hire a military veteran, you are getting someone with that can-do attitude. It is a person who has spent four or more years training to achieve every goal that’s set before him or her. If an obstacle comes along, that person is also trained to re-evaluate the situation and come up with a new solution that still achieves the primary goal.

Teamwork

One of the toughest things for employers to do when they hire a new employee is to determine how that employee will affect the chemistry of the team that’s already in place. One of the standout attributes of a veteran is his or her ability to work on a team.

In most instances, veterans have already run across a variety of management and coworking styles. In the military, it’s a fail or adapt atmosphere. Successful veterans have figured out how to adapt to multiple management and coworking styles and still accomplish the goal at hand.

Skills and Education

It’s easy to look at a veteran and say that he or she doesn’t have the skills you’re looking for because he or she did not go to college, but members of the military go through training that can be equivalent to what they would receive in college.

For example, an enlistee who holds the role of Information Systems Technician has the skills and training to do jobs such as cybersecurity analyst or database administrator. This veteran received real-world training experience that directly translates to these jobs.

About a month ago, we created a post to help translate military experience to the civilian job market. You can find it here if you would like more details.

Tax Credits

Not only do veterans make great employees for your business, but the federal government wants to make sure that they’re employed after they leave the military. That’s why it offers tax credits to companies that hire veterans. The Work Opportunity Tax Credit (WOTC) will offer large tax credits for every military veteran you hire. You can find more details about the WOTC here.

What you need to know about the WOTC is that the federal government is paying you to hire someone who is equal in skills and attributes to other applicants who may have gone the more conventional route of attending a two-year or four-year educational institution.

As we approach Thanksgiving, we here at Tax Credit Group want to say thank you to all the men and women who have courageously served our country. We are thankful for all of you!

Why You Need a Professional to Help You Claim Tax Credits

The U.S. Treasury recently issued a report that said that millions of dollars of tax credits have been issued to people who had no right to claim them. The report found that about 7 percent of the taxpayers claiming the Alternative Motor Vehicle Tax Credit, were not filing a claim for qualified electric vehicles.

We wrote a post in June about the Alternative Motor Vehicle Tax Credit and talked about what vehicles do and do not qualify for the credit. You can find it here.

The end result was the IRS discovered it was out about $74 million in unpaid taxes and that didn’t sit well with the agency.

Mistakes happen and if you’re filing your taxes yourself or claiming tax credits yourself, you may end up claiming something that you don’t qualify for. It happens. But what happens after that?

What Happens If You Claim a Tax Credit Incorrectly?

The IRS doesn’t like letting money go. The minute it discovers that you’ve claimed something that you do not qualify for, it’s going to contact you.

The IRS website has an article on how it will contact you and how you can keep yourself protected from potential scams, but here are the basics:

  • The agency will never reach out via email, social media or text message;
  • If you get a phone call, do not give out information over the phone and call the agent back through the IRS’s 800-number;
  • If an agent visits you in person ask for two forms of identification before you discuss your taxes.

Will I Owe Money?

If the IRS determines that you’ve claimed a tax credit incorrectly you will owe money. If you paid $1,000 in taxes in 2016 and the IRS discovers that you did not qualify for a $300 tax credit that you claimed, then you would owe a $300 tax credit to the IRS, plus any fees.

Will I Pay a Penalty for Claiming a Tax Credit Incorrectly?

The IRS can be an unforgiving entity so yes there will likely be a penalty attached to the request for payment of taxes owed. The amount of the penalty will depend on three variables, how long it’s been since the tax return was originally filed, how much money is owed to the IRS, and what kind of mistake you made in the initial tax return.

If you would like to see how the IRS calculates its fees, there’s an article here.

What if I File an Amended Tax Return First?

Even if you take the initiative and file an amended tax return, the IRS is still going to want its money and it will likely still charge you the penalty. Filing an amended tax return is appreciated, but serves no financial benefit except possibly preventing further fees down the road.

What Can I Do to Protect Myself?

The best thing you can do to protect yourself is to hire a professional. You want a CPA doing your taxes and you want a tax credit specialist to make sure you’re filing the right forms, crossing all your T’s and dotting all your I’s with the IRS.

If you’d like to know the specific difference between a CPA and a tax credit specialist, read this previous blog post.

Disclaimer: As with all the posts on this blog, this is just a general outline of what can happen and is certainly not specific to your case. If you have any tax questions, you should always consult your accountant or CPA. Tax Credit Group is also here to help.

What to Do if Immigration and Customs Enforcement (ICE) Comes to Your Business

With the current political climate, many small business owners are concerned that Immigration and Customs Enforcement (ICE) will pay a visit to their business. Despite their best efforts, small business owners can’t always know what goes on behind the scenes with every employee. Plus, these are co-workers and in many cases friends.

Why Would ICE Come to My Business?

According to the National Immigration Law Center, ICE will come to your place of business for a few reasons.

I-9 Audit

ICE officers may come to your workplace to confirm the identity and authorization to work in the U.S. for all your employees. When you hire employees, you need to make sure each of them fills out an I-9 form. Those forms should be onsite just in case ICE officers ask to see them.

To Speak to a Specific Employee(s)

ICE officers may also ask to speak to a specific employee. In this instance, you need to make sure that you’re not breaking the law. Do not hide employees or help them leave the premises.

What Should I Do if ICE Comes to My Business?

The American Immigration Lawyers Association has a complete pamphlet explaining what to do if ICE comes to your business, but there are some key points to highlight.

  • The minute ICE officers walk in the door, your receptionist or you should inform the agents that you will be calling your lawyer. Then call your lawyer.
  • Ask for a warrant. ICE officers should provide you with a warrant and that warrant should be signed by a court representative. If they do not, then it is not an authorized search. Read the warrant and ask for a copy of it. If you object, state your objection but do not get into an argument over it or try to prevent ICE officers from conducting their search.
  • Write down the name of the ICE officers involved, and the U.S. attorney assigned to the case.
  • You and your managers should not speak to ICE officers without first consulting with your attorney.
  • Inform your employees that they can choose to speak to the officers or choose not to. It’s up to them.
  • If ICE officers walk through your business, have an employee respectfully follow them. Your employee is legally allowed to photograph or record the search.
  • If anything is taken from your business, ask for an itemized list of what was taken.
  • If an employee is detained, contact his or her family and pay any wages to date.

ICE officers are allowed to search public areas of your business but are not allowed to search non-public ones unless those areas are specified in the search warrant.

What Should My Employees do if ICE Comes to My Business?

If your employees are asked to stay until ICE is done searching, then they also have rights.

  • Your employees are allowed to ask for an attorney if they’re being questioned. They also have the right to remain silent, though you cannot tell them to stay silent.
  • Employees do not have to disclose their immigration status, country of nationality or citizenship.

How to Prepare for a Visit from ICE Ahead of Time

Regardless of how you feel about the issue, it’s important that you know your rights and prepare your employees for the possibility of a visit by ICE officers. You should have a written response planned ahead of time that includes details about calling your lawyer.

You should also talk to your employees ahead of time about what they are and are not legally allowed to do.

The information provided in this article is a starting point but should not be considered legal advice. You must have an attorney in mind just in case an incident occurs. If you need more information about what to do during a visit from ICE officers, visit the National Immigration Law Center or the American Immigration Lawyers Association.

Celebrating National Disability Awareness Month

October is National Disability Awareness Month and it offers the perfect excuse to once again highlight the Work Opportunity Tax Credit (WOTC). For many businesses, the WOTC is the easiest tax credit for them to achieve.

Basically, the federal government is offering you an incentive for hiring from specific groups like veterans, persons with disabilities or people coming off long-term unemployment. In other words, you’re being rewarded for hiring a qualified employee. It seems like a no brainer.

If you’re one of the companies that’s already in on the WOTC, great! But there’s always more that you can do.

Create an Employee Resource Group

The federal government suggests that National Disability Employment Awareness Month is the perfect time to launch an Employee Resource Group, sometimes called an Employee Network or Affinity Group. The group is designed to help people with similar backgrounds or interests connect and receive support.

Home Depot does a great job of this. The company has a number of Employee Resource Groups including one for Asians called Pan Asian Waves and one for veterans called Military Appreciation Group.

Keep Your Employees Informed

To emphasize your commitment to disability inclusion, you should regularly reinforce that commitment through monthly meetings or training sessions with your employees. The Job Accommodation Network (JAN) has a whole list of disability etiquette materials so you can approach each individual with the proper sensitivity.

You can also create a bulletin board or put up posters in your break area or another common area where employees will see and read them. Change the items frequently so that employees are constantly learning. There are some great posters at What Can You Do? Campaign.

Train Your Managers

You also want to take special care to train your supervisors about their role in creating an inclusive workplace culture. Make sure your supervisors understand the process for providing reasonable accommodations for employees who may need it.

The Department of Labor suggests training modules at JAN.org. You can also use the Department of Labor’s Building an Inclusive Workforce guide.

Take Part in Disability Mentoring Day

According to the Department of Labor, “Disability Mentoring Day promotes career development for youth with disabilities through hands-on programs, job shadowing and ongoing mentoring.”

Disability Mentoring Day is the third Wednesday of October, so it is on October 16, 2019.

The American Association of People with Disabilities (AAPD) has a number of resources you can use to take part in Disability Mentoring Day.

Translating Military Experience to the Civilian Job Market

When you leave the military, it’s sometimes difficult to figure out how the experiences that you had during your service relate to the civilian job market. It’s tough to explain to someone that retiring as a Master Sergeant in the Army you have proved that you had the work ethic, the ability to lead, and the intelligence to manage a large group of enlisted men and women.

How to Explain Your Military Experience on Resumes

When you’re creating your resume, it’s tempting to write down that you spent three years as an XO in the military personnel office, or that you were an Operations NCO with seven subordinates, but not many civilians know what that translates into.

Your resume is your first impression. You need to make sure that it conveys a message that the person reading will understand or you’ll never get called in for an interview.

Job Roles to Translate

One of the toughest things to correlate into civilian life is what role is equivalent to the experience that you received in the military. Military.com has a really good comparison list here, but we’ll list it below too.

Commander = Director or Senior Manager
Executive Officer = Deputy Director
Field Grade Officer = Executive or Manager
Company Grade Officer = Operations Manager or Section Manager
Warrant Officer = Technical Specialist or Department Manager
Senior NCOs = First-Line Supervisor
Infantry = Security Force
First Sergeant = Personnel Manager
Squad Leader = Team Leader or Team Chief
Supply Sergeant = Supply Manager or Logistics Manager
Operations NCO = Operations Supervisor

By changing the terms, you’re letting hiring managers know the civilian skills that you acquired during your time in the military.

Other Resume Tips

When it comes to listing your skills and attributes, make sure that you stay away from abbreviations. What’s common speak in the military isn’t so obvious to civilians and so saying that you were on a TAD/TDY doesn’t make sense to a civilian. In fact, saying Temporary Additional Duty probably doesn’t make sense either so call it a business trip.

If you managed a group of soldiers, make sure you quantify that group. Say that you managed a team of five or oversaw a battalion of 250 soldiers. Numbers let people know what kind of groups you led throughout your career. They also help people better understand your overall ability to lead.

How to Explain Your Military Experience in Interviews

If you get the call to come in for an interview, it’s okay to prepare with stories from your time in the military. After all, that’s when you acquired all those great skills that are going to help the company you’re interviewing with. What you want to change is the way you talk about those experiences.

The site Real Warriors has some great tips.

When it comes to talking about your technical skills, talk about the IT equipment that you used if you’re interviewing for an IT job, or talk about the communications gear you used. If you worked in an office setting, talk about the computer programs that you used or your daily duties.

When it comes to working as a team, few people understand that better than military veterans. Be sure to have a few examples of how your group faced a challenge and how you worked to unite the group to accomplish a task. This is your chance to shine.

Looking for Work Based on the Skills You Acquired in the Military

The site Military.com has a great tool for veterans looking to enter the civilian workforce. The Military Skills Translator will look at the branch of the military you were in, your job title and then search for jobs that will best suit the skills that you acquired during your military service. The Skills Translator is designed to translate your military expertise with the current job market.

Lockheed Martin also has a military skills translator for jobs at Lockheed Martin.

Top Employers of Military Veterans

According to the site Military.com, the top employers of veterans include:

  1. Booz Allen Hamilton
  2. Science Applications International Corporation (SAIC)
  3. Northrop Grumman
  4. L-3 Communications
  5. Lockheed Martin
  6. S. Department of Defense
  7. BAE Systems
  8. DXC Technology
  9. CACI International
  10. The Boeing Company

Other companies known for hiring veterans include Home Depot, Walgreens, U.S. Department of Veterans Affairs, and Southwest Airlines.

Be sure to check the U.S. Department of Veterans Affairs website for more help in joining the civilian workforce. Among other things, that’s what the VA is there for.

What You Need to Know About the Work Opportunity Tax Credit (WOTC)

Here at the Tax Credit Group, we spend a lot of time talking about the Work Opportunity Tax Credit, also known as the WOTC, and what it does. We talk about it so much that it often gets ingrained in our speech and we sometimes forget that other people don’t know what it is or what it means.

What is the Work Opportunity Tax Credit (WOTC)?

The WOTC is a tax credit that’s given to employers for hiring employees from specific groups such as veterans, ex-felons, people on food stamps, and the long-term unemployed.

The IRS has a whole list of people who qualify for the WOTC and if you want to take a look just click here.

WOTC Form 8850

To claim someone as a WOTC, you first have to have that person screened by the IRS. That’s why you’ll hear the term Form 8850 a lot. It’s the form you must fill out and file with the IRS so that the agency can approve or deny your plans to claim an employee as a tax credit.

You must get this done quickly. The IRS has a time clock on this kind of paperwork. You have 28 days from the employee’s first day of work to file the Form 8850 with the employee’s “state workforce agency”.

Is the WOTC tax credit refundable?

In a previous post, we talked about the difference between a tax credit and a tax deduction. When it comes to a tax credit, if you have enough of them, they can drop the amount of money that you owe to the IRS below zero. This means the IRS could owe you a refund.

The Congressional Research Service lays out all the details, but the bottom line is that the WOTC is non-refundable except in certain, very specific circumstances. Non-refundable means that once you hit zero with your tax bill, that’s it for the year.

WOTC Form 5884-C

Now the one exception is that certain tax-exempt employers can receive a refundable WOTC. If you do, then you’ll need Form 5884-C.

If you think you’re in that situation, you should contact your CPA for clarification or us here at the Tax Credit Group.

Carrying forward the WOTC

While you cannot go below zero, you can carry the WOTC back one year on your taxes or forward up to 20 years according to the Tax Foundation. That means if you drop your taxes owed down to zero in one year and use the rest of the credit for the next year’s taxes. That can continue until you use all the tax credits or hit the 20-year mark.

Does WOTC benefit the employer?

The financial benefit of the WOTC varies depending on the employee and how many hours the employee works in his or her first year of employment.

According to the Tax Foundation, “The size of the tax credit is 25 percent of the qualified employee’s first year wages if the employee works between 120 and 400 hours of that year. This grows to 40 percent of the employee’s first year wages if the employee works more than 400 hours of that year.”

This is per employee, so if you employ multiple people that qualify for the WOTC, you stand to see a substantial credit.

The IRS caps the amount of WOTC a company can claim, and it varies depending many different factors. Be sure to check with your CPA or reach out to us if you’re not sure.

Piggy-back WOTCs

The other benefit that a company can receive from the WOTC is the piggy-back credit. We talk about WOTC piggy-back credits in a previous blog post, but the basic idea is that states also offer WOTCs for state taxes. Sometimes all it takes is applying to the federal program to qualify for the state benefits as well.

Does WOTC benefit the employee?

When it comes to taxes, the WOTC doesn’t benefit the employee, just the employer. The employer is the only one that gets to claim the tax credit.

However, the WOTC still benefits employees. An employer looking to use the WOTC they start actively seeks out employees who fall into one of the categories designated by the IRS. That’s the whole point of the WOTC, to get some of the underemployed workforces such as veterans and ex-felons, employed.

What the WOTC does is offer more and more diverse employment opportunities to key groups.

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