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Hiring Tax Credits
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces the federal tax liability of private-for-profit employers. Employers can hire from eleven different targeted groups:
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Qualified Temporary Assistance to needy Families Recipients (TANF)
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Qualified Veterans/Disabled Veterans
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Unemployed Veterans
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Qualified Ex-felons
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Qualified Designated Community Residents (DCR) residing in an Empowerment Zone (EZ), Renewal Community (RC), or in a Rural Renewal County (RRC)
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Qualified Vocational Rehabilitation Agency Referrals
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Disconnected Youth
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Qualified Summer Youth (SY)
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Qualified Food Stamp Recipients (FS)
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Qualified Supplemental Security Income Recipients (SSI)
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Qualified Long-Term Family Assistance Recipients (LTFAR)
Maximum Credit Available
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$1,200 for each new Summer Youth* hired
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$2,400 for each new Adult hired
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$4,800 for each new Disabled Veteran hired
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$9,000 for each new Long Term Family Assistance Recipient hired over a two year period
* The credit is based on 40% of up to $6,000 in qualified wages during the first year of employment. Summer Youth qualify for 40% of the first $3,000 in wages during the required working period of May 1 through September 15.
Minimum Employment or Retention Period
All new employees must work a minimum of 120 hours and individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. Recent program changes took place in 2007 that impacted multiple target groups. One such change was the consolidation of the Welfare-To-Work Tax credit program into the WOTC program to become known as Long-Term Family Assistance and a second change was the creation of the new Disabled Veteran target group that went into effect May 25, 2007. On February 17th as part of the American Recovery and Reinvestment Act (ARRA) of 2009 two new categories were created Unemployed Veterans and Disconnected Youth.
The WOTC Program has been reauthorized until August 31, 2011
Long-Term Family Assistance Recipients who began work after December 31, 2006 and before September 1, 2011, can earn employers up to $9,000 if they are a member of a family:
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That received TANF for at least 18 consecutive months before the hire date
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Whose TANF eligibility under federal or state law expired after August 5, 1997 (for applicants hired within two years after their eligibility expired)
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That received TANF for at least 18 months, beginning after August 5, 1997, and is hired not more than two years after that 18-month period
Disabled Veterans who began work after May 25, 2007 and before September 1, 2011, can earn employers up to $4,800 if they:
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Are entitled to compensation for a service-connected disability of at least 10%
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Have a hiring date which is not more than 1 year after having been discharged or released from active duty in the Armed Forces of the United States
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Have aggregate periods of unemployment during the 1 year period ending on the hiring date which equal or exceed 6 months
For more information, use our contact us form or call Terry Judge at 888 706 4646 x 307
Federal HUD ZoneTax Incentives, Empowerment Zones and Renewal Communities
Are there any employer incentives for hiring employees who work in an Enterprise Zone (EZ) or Renewal Community (RC)?
Yes. The tax code allows employers a credit against Federal taxes for hiring and retaining employees who live and work in an EZ or RC. The EZ Wage Credit has been available since 1994 for Round I EZs and since 1998 for the District of Columbia.
Can a business use this credit for current employees?
Yes. The EZ Wage Credit and RC Wage Credit are incentives to hire and retain individuals who live in an EZ or RC, so it is available each year throughout the EZ Wage Credit and RC Wage Credit periods.
What if the employee works part-time?
The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number of hours worked.
What is the credit amount?
The EZ Wage Credit amount is up to $3,000, and for the RC Wage Credit is $1,500.
Is there a limit on the number of employees for which a business can take the credit?
An employer can take the credit for as many employees as qualify.
What if the employee works in an EZ or RC for only part of the year?
An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in an EZ or RC. No other time periods can be used to prorate the credit.
For example, if an employee works in several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in an EZ or RC.
What if the Federal tax liability of the business is less than the total credit amount?
The EZ Wage Credit and RC Wage Credit generally are subject to the same rules as other business tax credits. As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year. However, the credit cannot be carried back prior to the EZ or RC designation.
Can a pass-through entity, such as a partnership, Limited Liability or S-corporation, use the credit?
The EZ Wage Credit and RC Wage Credit are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.
Which categories of employees would not qualify for the EZ and RC Wage Credits?
The EZ and RC Wage Credits cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the sale of alcoholic beverages for consumption off premises. The EZ and RC Wage Credits are not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as dependents under the tax code. Similar exclusions apply to 5 percent owners related to the employer and family members of majority shareholders or partners of the employer.
Indian Tax Credit
Qualifying Employees
Employees that are certified members of an approved Native American tribe or the spouse of a certified member are qualifying employees. The employee must live on or "near" the reservation and perform the majority of the work on the reservation and has worked for a minimum of one year.
Qualifying Companies
The company must be located on the reservation.
Tax Credit Available
The maximum annual credit available is $4,000 per eligible employee.
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