May 21st 2010
By Blake Christian, CPA/MBT
With California unemployment hovering at 13 percent and the national unemployment rate still above 9.5 percent, long-term unemployment is clearly one of the biggest challenges for the U.S. economy. The human and financial toll on the unemployed individuals and their families, however, can overshadow the national and state impact associated with the weak job market.
Both unemployed (including some recent graduates) and certain currently employed Individuals looking for work can dramatically increase their attractiveness to prospective employers by highlighting certain tax breaks that employers can secure by hiring them. A majority of the businesses are seldom familiar with the wide variety of incentive credits. Those that do know about them tend to materially understate the benefits and often claim nothing at all. So the employee that is aware of what they can bring to the table will often be providing their future employer valuable information.
It is recommended that employees highlight the applicable hiring credit on their resume, and work this into the interview to improve their chances of being hired. National Tax Credit Group, LLC has created a “Tax Credit Card” which they issue to prospective employees after screening them for hiring credit eligibility. The City of Long Beach, CA also uses this system through their Workforce Investment Board and incorporates the state and federal credit programs into their training and employer outreach.
To illustrate, if an employee can generate a $10,000 state Enterprise Zone or other credit for their employer, their $30,000 annual salary effectively drops to $20,000 for the first year. That is a 33.3 percent decrease in labor costs. The new federal HIRE Act tax breaks (discussed in more detail below) can provide a 6.2 percent reduction in payroll taxes for the eligible employee and also generate a $1,000 hiring credit if the employee stays employed for a full year.
These tax benefits generally come in the form of a variety of federal, state and local hiring credits, training grants or payroll tax breaks. The incentives can provide an employer with economic benefits of up to $15,000 per year, depending on the specific program and the profile of the employee.
These hiring credit programs have been around for decades and were established to encourage businesses to hire economically disadvantaged taxpayers (e.g. unemployed, family income near the poverty level, recently discharged from the military, etc.). There are also thousands of residential regions throughout the U.S. which can qualify the employer for hiring credits for hiring employees residing in these designated areas.
California’s Enterprise Zone program includes 42 reasonably large regions and hiring credit criteria currently includes over 13 distinct methods for qualifying employees for the credit. Similar to other programs, employees living in certain economically challenged areas, currently unemployed or those threatened with lay-off, military veterans, employees participating in various federal or state programs such as welfare, food stamps, etc. can generate credits up to $13,000 per year for an employer operating in a zone.
Forty-two other states have state-level programs which entitle employers to credits ranging from $500 to $15,000 for each qualified employee hired. States with the most attractive programs include New York, Florida, Georgia, Arkansas, Kentucky, and Arizona.
A summary of other tax incentive programs which employees should consider highlighting on their resume, or discussing during the interview, includes:
|Program Type||Maximum Hiring Credit||Number of Zones||Form Number|
|State Enterprise Zones||$500 to $15,000||43 States||Varies by State|
|Fed Empowerment Zone||$3,000/yr. per employee||41||IRS Form 8844|
|Fed Renewal Community||$1,500/yr. per employee||41||IRS Form 8844|
|Fed Indian Tribal Lands||$4,000/yr. per employee||4476||IRS Form 8845|
|Fed Gulf Opportunity (GO) Zone||$2,400 per employee||132||IRS Form 8850|
|Fed Rural Renewal Counties||Eligibility for $2,400 to $4,800 WOTC||408||IRS Form 8850|
Federal WOTC Credits:
In addition to the location-specific benefits, businesses located anywhere in the country are also eligible for two valuable federal wage credits such as the Work Opportunity Tax Credit (WOTC) and the Welfare-to- Work Tax Credit (WtW). WOTC can generate up to $2,400 to $9,000 for public assistance employees, residents in the 408 Rural Renewal Counties throughout the country. Any business that hires a resident from one of these counties can obtain a credit ranging from $2,400 to $4,800 for most resident residing in the designated county. The credit is claimed on Form 8850. More information can be obtained at the Department of Labor Web site, and the EZ/RC address locator, and the USDA Rural Development Web site.
Two New Hiring Tax Benefits Under Federal HIRE Act Credits:
An employer hiring credit of up to $1,000 is also available in 2011 for non-family employees hired after Feb. 3, 2010 and retained for at least 12 months. The employee must either be: 1) hired for a newly created position, OR a replacement of an employee who quit or was let go “for cause”.
So as not to put further strain on the Social Security system, the payroll tax reduction under the HIRE Act will be transferred from the federal General Fund.
The links below provide a summary of the 6.2 percent employer FICA tax holiday through December 31st for hiring employees who have been unemployed (or worked less than 40 hours a week for another employer) prior to being hired.
Employees and employers can obtain additional information about various federal and state programs by performing web searches listing your city of residence and the city in which you are applying. In addition, the following sites can offer useful information about these programs:
Employee candidates who spend a little extra time researching the tax breaks that they can provide their new employer will improve their chances for getting hired by a significant percentage. It will set them apart from other candidates demonstrating their knowledge of what they can do to benefit their potential future employer. In addition, their job security is also often improved since the credits are often conditioned upon some period of retention by the employer.
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