Tax credits are always important for businesses in the challenging times we live in. While WOTC (Work Opportunity Tax Credits) are still available on a federal level, Point-of-Hire credits are also available in many states.
What should you know about Point-of-Hire credits, though? Take a look at our guide on how they work and how much potential tax credit savings you can enjoy.
We’ll also look at other useful tax credits to consider throughout the year.
How Much Money Could You Save with Point-of-Hire Tax Credits?
The savings your business could muster with Point-of-Hire tax credits range from a few hundred dollars to as much as $35,000 per employee. It all depends on the state where this credit is available.
So far, these credits are only available in eight states: Arizona, California, Illinois, Louisiana, New Mexico, New York, South Carolina, and Washington. Time-frames for claiming the credit all vary based on your particular state.
In Arizona, tax credits up to $9,000 are possible for each new net quality job created. It works over a three-year period with $3000 in credit per year. Credits of up to $9,600 are available to employers in California, with the renewal of WOTC credits occurring recently.
A list of other credit savings possible in states participating in Point-of-Hire credits:
- Illinois: Tax credit equal to 40% of first-year wages if employees work more than 400 hours. In the second year, this credit goes up to 50% while working the same hours.
- Louisiana: A 25% tax credit ($1,500) of qualified first-year wages for employees working 120 hours. This goes to 40% ($2,400) for employees working 400 hours or more.
- New Mexico: Credits here are 40% on first $10,000 wages in the first year, then 50% of the first $10,000 earned in the second year.
- New York: $1,500 is available in credits here to individuals who worked at least 120 hours, followed by $2,400 when working a full 400 hours.
- South Carolina: Credits between $2,400 to $9,600 are available, with no limits on how many employees your business hires in a year.
- Washington: Each qualifying hire here can get a credit up to $2,400, plus $9,000 for long-term family assistance recipients.
What is a Welfare-to-Work Tax Credit?
More federal tax credits are available beyond WOTC and the limited Point-of-Hire credits. The Welfare-to-Work credit is still a popular option since it helps bring businesses credits hiring those on government assistance.
In a more challenging time economically, this type of credit can bring a real sense of accomplishment in helping to reduce unemployment in America. What makes it so effective is it was enacted at the same time as WOTC back in 2007.
Using both of these tax credits can end up being a major benefit to your company in any tax year. Both are likely to stay active on a federal level indefinitely.
What Tax Credits Benefit Employees?
There are several different types of tax credits that can benefit the employees of a company and help them maximize their income. Informing employees about these tax credit opportunities not only increases their net earnings but can also help businesses retain financially satisfied employees.
Earned Income Tax Credit
Employees can take advantage of an EITC if they earn a low to moderate-income. It works more like a refundable tax credit for your workers, except it sometimes delays tax refunds.
Any delays on usual tax refunds with this credit are due to an IRS law requiring a bit of a wait. Still, it’s very beneficial for lower-wage workers in your company. Keep in mind employees with children are the ones who stand to get the biggest credit.
For 2021, credit ranges on an EITC go from $543 to $6,728, which is contingent on filing status and how many children a family has. One great thing about the EITC is employees can get credit from the last several years if they didn’t realize they qualified for it over that period of time.
Lifetime Learning Credit
Many of your employees may be seeking an education while working for you. If so, they can get a Lifetime Learning Credit. These go up to as much as $2,000, giving significant savings for your valuable workers.
Part of that education they’re getting might be related to bettering their own jobs. Obtaining credits on tuition and any other education expenses greatly benefits them, or their spouse. An employee can also use this on a dependent.
Individuals can take this credit if their educational expenses are at least $10,000. On an income level, an individual has to make under $69,000 to officially qualify.
The credit goes beyond ordinary tuition and allows one to also write off any additional fees associated with getting an education.
Saver’s Tax Credit
Another great tax credit is this one where employees can help save more money for retirement. It all depends on their adjusted gross income requirement. As with EITC above, this credit is designed for those with lower to moderate incomes. At one time, this was known as a Retirement Savings Contributions Credit.
To use this for 2021, a head of household can get 50% of their contributions if making under $29,625 per year. A married person filing jointly can also take 50% of contributions if making $39,500 or less.
Employees can’t take any credit if they make more than $49,500 as a head of household. For a married person, no credits apply if they make more than $66,000.
What if You Have No Tax Liability?
An interesting thing about federal tax credits is some of your employees can still take advantage of one if not owing taxes. They might still qualify for $1,000 in tax credits, meaning they could get a $1,000 refund as a result.
While these scenarios are rare, it might occur if having employees who are volunteering at the moment rather than taking direct pay.
Always remember that to claim any tax credits, you need to fill out Form 1040 at the IRS. Schedule EIC is another form to fill out if claiming the EITC and listing dependents.