San Francisco Small Business Tax Tips: Using the Work Opportunity Tax Credit

Filed in CPA Blog by on June 3, 2013
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Here’s an excerpt from our May, 2013, client newsletter. As a top San Francisco CPA Firm, we strive to keep our clients up-to-date about all sorts of tax and financial issues. There are some fantastic tax credits available for hiring and/or retaining workers of specific types. With the high labor costs in San Francisco, these tax credits can really help the bottom line of a Bay Area business!

Among the business related provisions of the American Taxpayer Relief Act of 2013, the work opportunity tax credit (WOTC) was extended retroactively, for 2012, and also through 2013. Under the WOTC, employers can receive federal tax credits for hiring and retaining workers from specific groups of individuals that have been designated as facing significant barriers to employment.

Taking credit If your company hires a worker covered by the WOTC, the tax credit you can claim will depend on the target group of the individual, the amount you pay him or her for the first year of employment, and the number of hours that individual worked. Here are the basic rules. If an employee works:

  • at least 120 hours, you can claim a tax credit of 25% of the individual’s first year wages.
  • at least 400 hours, you can claim a tax credit of 40% of the individual’s first year wages.

Generally, the maximum tax credit is $2,400. That ceiling applies if you hire food stamp recipients, certain residents of a federally designated Enterprise Community, Renewal Community, Rural Renewal County or Empowerment Zone, individuals in certain vocational rehab programs, ex-felons, or recipients of Supplemental Security Income benefits. If you hire a qualified summer youth employee (i.e., a 16 or 17 -year-old who lives in an Empowerment Zone, an Enterprise Community, or a Renewal Community) to work for your company between May 1 and September 15, the maximum tax credit is $1,200. As explained in the following paragraphs, two other categories of employees have higher maximum WOTC credits. Hiring veterans You may be able to claim the WOTC if your company hires a veteran who served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or has been discharged or released from active duty because of a service related disability. That person must not have been on active duty (not including training) for more than 90 days within the 60-day period before being hired.

Read more: May, 2013, client newsletter

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