It’s going to cost your small business clients to hire this summer, but at least the wages are deductible on their annual returns. Even better, if they hire workers from one of several “target groups,” a portion of the wages may qualify for a special tax credit.
This credit, which has expired and been reincarnated several times, is currently known as the Work Opportunity Tax Credit (WOTC) and is available through 2019. In addition to the regular credit, a business may be eligible for a special “summertime” credit for hiring certain disadvantaged youths.
How does the credit work? Generally, it is equal to the worker’s first-year wages up to $6,000 if he or she works at least 400 hours during the year, for a maximum credit of $2,400 per worker. For disabled veterans, the credit may be claimed for the first $24,000 of wages, for a maximum credit of $9,600 per worker.
There is no limit on the number of credits a business can claim. For example, suppose your client hires five eligible workers this year who each qualify for a $2,400 credit, As a result, the business may claim a total credit of $12,000 – a dollar-for-dollar reduction of its 2018 tax bill.
Currently, there are nine target groups eligible for the regular WOTC. The latest category to be added, effective January 1, 2016, covers long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and have received state or federal unemployment benefits during part or all of that time.
The other categories include certain veterans and recipients of various kinds of public assistance, among others. The complete list is as follows:
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.