“WOTC can reduce employer federal tax liability by as much as $2,400 to $9,600 per new hire.”
(https://www.colorado.gov/pacific/cdle/incentives-tax-credits)
Year-end is a great time to reevaluate many aspects of your business operations. With upcoming tax deadlines, there is a typical, almost obligatory, reluctance to pay them. But you might be happy to learn that your company can earn tax credits by employing targeted groups of job and career seekers.
Most job seekers fall well within companies’ current hiring policies, like veterans and recipients of TANF. However, utilizing these tax credits may mean changing or updating your job requirements and, in some cases, your insurance coverage.
Credits vs. Deductions
Through several programs encouraging the hiring of certain employees, there are tax credits available to your company. To understand how that can affect your bottom line, you need to begin with a working knowledge of tax credits compared to deductions.
Employers pay income taxes on profits of their business, or the revenue less its expenses, and are then taxed on those profits. Tax credits reduce the total tax amount when qualified. For example, if your company owes $10,000 in taxes and gets a $2,600 credit for hiring a qualified employee, the company only owes $7,400 in taxes. A credit directly reduces the tax liability, or taxes owed.
Alternatively, a tax deduction lowers the amount of money your company is taxed on. If your company’s profit is $2M and you receive a $2,000 tax deduction, your company will pay taxes on $1,998,000.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit, or WOTC, is a federal tax credit that incentivizes hiring certain groups of employees. If an employee and employer meet the qualifications, the IRS can issue a credit of $2,400 to $9,600 per new hire according to the Colorado Department of Labor and Employment (CDLE).
This link will direct you to a video introduction of WOTC specifically for employers.
Detailed credit amounts and eligibility criteria are included on this Department of Labor WOTC document.
To confirm that a job seeker meets the necessary criteria, they must complete the IRS Form 8850, which can be found here. There are eight targeted job seeker groups that make an employer eligible to receive the WOTC tax credit:
- Veterans
- Recipient of TANF, or Temporary Assistance for Needy Families
- Recipient of SNAP, or Supplemental Nutrition Assistance Program (also known as “food stamps”)
- Designated community resident for particular renewal counties or empowerment zones
- Employee who is in or completed a Vocational Rehabilitation Referral program
- Felon hired within one year after the conviction or release from prison
- Supplemental Security Income Recipient
- Summer Youth Employee within an empowerment zone
- Click here to view more information on WOTC target group eligibility.
Qualified employees must work 120 hours or more in their first year of employment to receive this tax credit.
Please note that you need to send an application and get a certification from the CDLE WOTC Unit within 28 days of the new hire’s start date.
Federal Bonding Program
According to CDLE, “A fidelity bond is provided to the employer free of charge and serves as an incentive to the company to hire a job applicant who is an ex-offender or has an at-risk background in obtaining employment. It is a business insurance policy that protects the employer against financial loss due to theft, forgery, larceny or embezzlement caused by employee dishonesty.”
The result of the bonding program is two-fold:
- It helps the job seeker gain employment despite having a background that prevents them from getting a job. Often, insurance will not cover employees with particular criminal charges.
- It provides an employer with free insurance for 6 months to protect against financial loss due to the hired employee.
This is a great middle ground to hire someone that has the skillset your company needs while providing insurance coverage to get them in the door.
To learn more about federal bonding, click here
As with any program put in place by your company, weigh the pros and cons to ensure it’s the right thing to do for your business and the employee you want to hire.
ROLINC Staffing provides direct hire placements, which gives both the employee job offer security and the hiring company the opportunity to receive tax credits from WOTC.
To see if direct hire for WOTC would work for your company, contact ROLINC today.