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What Are Point-Of-Hire Tax Credits And Other Tax Credits?

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.

Do you need to learn more about Point-of-Hire tax credits? Contact us at Quentelle to learn about our platform. Click here to learn how you can schedule a demo.

 

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Understanding Work Opportunity Tax Credits (WOTC) 

There are several Federal hiring incentive programs in the United States. One of these programs and perhaps the one with the longest tenure is WOTC, which stands for Work Opportunity Tax Credit. This program is designed to promote workplace diversity by hiring individuals who typically face barriers to secure employment.

More about WOTC:

The Work Opportunity Tax Credit provides a Federal tax credit to employers who hire and retain individuals from certain target groups. The goal is to increase workplace diversity and help people who have particular difficulty finding sustainable employment.  In the current version of the program, the target groups are as follow:

  • IV-A recipients. These are individuals whose  family is receiving TANF. To qualify, assistance must have been received for a 9-month period during the past 18 months.
  • Veterans whose families are receiving SNAP or who have been employed for four consecutive weeks or at least 6 non-consecutive months in the last year. It also includes disabled veterans.
  • Ex-felons hired within a year of conviction or release.
  • Designated community residents, that is people who live in select impoverished communities such as Rural Renewal communities.  To qualify, they must continue to live in those communities.
  • Individuals referred to Vocational Rehabilitation.
  • 16-17 year olds seeking summer jobs who live in one of the impoverished communities.
  • SNAP recipients. (Supplemental Nutritional Assistance Program – also known as food stamps)
  • SSI recipients. (Supplemental Security Income)
  • Long-term family assistance recipients.
  • Long-term unemployment recipients.

As you can see, the credit is a direct reward for hiring somebody who might otherwise have had problems finding and securing a job. It maxes out at the amount of business income tax liability or social security tax owed. It can be applied as a credit against business income tax liability.

What is Changing with WOTC?

Despite the rollercoaster ride 2020 has proven to be, we end the year on a high note. The 11th hour agreement reached by lawmakers on Sunday, December 20 will include a renewal of the Work Opportunity Tax Credit (WOTC)  through December 31, 2025.

The $900 billion COVID-Relief package, H.R. 133, “Consolidated Appropriations Act, 2021”  also includes host of provisions and programs within the bill, designed to provide relief to businesses impacted by the pandemic. The House of Representatives overwhelmingly voted to pass the bill 359-53 just hours after the final legislative text was released to members. The Senate followed suit by passing this bill with a 92-6 vote.

“Securing a long-term extension of WOTC was the right thing to do, as it ensures job applicants a chance to secure sustainable employment and gives companies an opportunity to find good talent and offset their corporate taxes as they recover from the impact of the pandemic.” said Phil Ownbey, President of Walton Management Services.  

While we hoped the renewal would also add pandemic-focused target groups, this extension does not include any changes to the program. However, this buys us some time to regroup and strategize our lobbying with the incoming administration.

Will the Pandemic Affect WOTC?

One key question is the potential effect of the COVID-19 pandemic and resulting economic disruption on WOTC. It’s clear that the pandemic makes extending the credit even more important. As the pandemic ends and recovery begins, encouraging employers to hire people who lost their jobs at the start of it and have been struggling since is likely to speed recovery, especially in disadvantaged areas.

The incoming administration has promised a better plan for dealing with the pandemic and depending on what happens with Congress, this could involve changes to WOTC. Two big changes might be considered:

  1. An audit of Empowerment zones and Renewal communities to potentially add towns and neighborhoods that have been particularly badly hit.
  2. The potential addition of more target groups. For example, COVID-19 is resulting in long-term sequelae for many patients, but most of these patients are getting better, if slowly. Many of these long COVID sufferers have lost their jobs and for those who do recover, finding new employment might be tough. Creating a temporary target group could be one way to assist them back into the workplace. Target groups might also be created to assist people in industries that were particularly hard hit.

Adjusting WOTC can be an easy way to incentivize employers to help bring back those who have been particularly hard hit by the pandemic, which has disproportionately affected minority communities.

How Do You Get WOTC?

Applying for the credit is simple, and there’s two ways to do it. In some cases state or local workforce agencies will provide qualified workers with a pre-certified form that they can give to you. Or if you believe your new employee falls into a target group, then you can fill out an individual-characteristics information form that explains how the person falls into a target group.

You then fill out a certification request form, obtainable from the IRS. It’s Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This must be provided to the state workforce agency within 28 days of your worker’s first day. Assuming that the request is approved by the state agency by way of certifying the employee, you will then be able to add the credit to Form 3800 as a general business credit. You will also need to file Form 5884. If you are tax-exempt, you need to instead file Form 5884-C to get a credit against employer social security tax.

Some employers find out about WOTC for the first time when a new hire shows their eligibility form, but the intent of the program is to encourage you to seek out people who need a job badly and bring in people you might not have thought to hire.

If you are looking for tax breaks and also a way to help bring new and interesting viewpoints into your office, the Work Opportunity Tax Credit gives you a solid incentive to hire less traditional employees. It is, however, complex to understand. Quentelle’s human resource bundle can help with this and other employment-related tax issues. Contact us to find out more about our human resources software and how we can help you simplify employment and tax issues, including all point-of-hire credits.

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