Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that Congress provides to private-sector businesses for hiring individuals from target groups who have traditionally faced significant barriers to employment. The main objective of this program is to enable the targeted employees to move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers while the participating employers are compensated by being able to reduce their federal income tax liability. The WOTC program has greatly expanded in recent years as Congress has introduced new target groups, increased the tax credit benefit and established new flexible filing provisions.
The following target groups are eligible for the WOTC program:
- Long-term Temporary Assistance for Needy Families (TANF) recipient
- Other TANF recipient
- Supplemental Nutrition Assistance Program (SNAP or “food stamp”) recipient
- Designated Community resident
- Summer youth employee
- Qualified veteran
- Vocational rehabilitation referral
- Qualified ex-felon
- Supplemental Security Income (SSI) recipient
The WOTC benefit claimed by an employer is determined by the hours worked and the employee’s WOTC target group. New employees who work at least 400 hours ore eligible for a larger credit. The credit is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours and 40% for those employed 400 hours or more. The maximum benefit amounts are determined by the employee’s WOTC target group and are listed below:
- $9,600 per each disabled, long-term unemployed veteran hire
- $9,000 per each long-term TANF hire (over a two-year period)
- $5, 600 per each long-term unemployed veteran hire
- $4,800 for each disabled veteran hire
- $2,400 for all other WOTC target groups
- $1,200 for each summer youth hire
We provide the necessary government forms and ensure the job applicant completes the forms properly. Completed forms are returned to us within one week of the date of hire as failure to file within 28 days will deny certification. We check eligibility, enter the data into our system and forward the forms to the appropriate state workforce agency (SWA). The state will issue a certification based on the employee’s qualifications and return the certification notice to us. We monitor the tax credit benefit based upon the wages and hours worked for each employee in the program and will issue an annual report containing all of the information required to file the federal tax return and claim the tax credits.
Federal Empowerment Zone Employment Credit
Federal Empowerment Zones (EZ) were established by the US government to reduce unemployment and generate economic growth through the designation of Federal tax incentives. Businesses located in an EZ are eligible for two major incentives :
- A Federal tax credit of up to $3,000 per new hire that works and resides in an EZ;
- A Sec. 179 deduction for qualified property placed in service by an EZ business of up to $35,000.
California Competes Credit
As a replacement to the Enterprise Zone program, and in addition to the new California Employment Credit, Governor Brown’s Office of Business and Economic Development (“Go-Biz”) established the “California Competes Tax Credit” for 2014 and subsequent years. This program provides discretionary California income tax credits to new businesses that move to California, and to existing California businesses that want to stay and grow in California. The tax credit can be distributed over a six year period.
The California Competes Tax Credit has no defined calculation or amount. The business applying for the tax credit requests the amount of tax credit it deems reasonable based on the foreseeable funds needed for growth. The business must submit an application online to Go-Biz detailing a plan for growth in California, including increased employee count and continued capital investments. A tax credit agreement is then negotiated by the business and the Go-Biz office and the application is then approved by the “California Competes Tax Credit Committee.” The following are some of the main factors that Go-Biz will consider in determining eligibility and the amount of credit to a business who submits an application:
- Number of Full-Time Jobs (and compensation for the jobs) the business will create or retain in California;
- Amount of investment in California by the business (i.e. equipment & assets purchases);
- Extent of unemployment or poverty where business is located;
- Outlook of future growth and expansion in California by the business;
- Possibility of business leaving California for better opportunities provided by another state.
Go-Biz will review all submitted applications and determine which applications will advance to the negotiation phase. In this phase, the California Competes Tax Credit Committee will negotiate and award the tax credit amounts. The amount of credits that can be distributed by Go-Biz are as follows:
- $30 million in fiscal year 2013/14
- $150 million in fiscal year 2014/15
- $200 million in each fiscal year 2015/16 through 2017/18
- Note: Small businesses (gross receipts less than $2 million) are eligible to apply for the credit, and 25% of the credit in each available year is reserved for small businesses.
California New Employment Credit
The New Employment Credit (NEC) is available for each taxable year beginning on or after January 1, 2014, and before January 1, 2021. The NEC is available to employers located in a Designated Geographic Area (DGA), including former Enterprise Zones, who hire qualified full-time employees on or after January 1, 2014, and pay or incur qualified wages attributable to work performed by the qualified full-time employee in the DGA. Qualified wages equal the portion of wages paid or incurred that exceed 150% of minimum wage, but do not exceed 350% of minimum wage. Employer must receive a tentative credit reservation for each qualified full-time employee. In addition, an annual certification of employment is required with respect to each qualified full-time employee hired in a previous taxable year. Employer must have a net increase in the total number of full-time employees in California. Credits are used to offset a company’s state income tax liability, and can be carried over for 5 years.
A qualified employee is any employee who:
- Performs at least 50% of their services for the employer in the DGA;
- Receives starting wages that exceed 150% of the State minimum wage;
- Is hired on or after January 1, 2014;
- Is hired after the DGA is designated;
- Is paid hourly wages for an average of at least 35 hours per week, or is salaried, and paid for full-time employment (within the meaning of Section 515 of the Labor Code);
- Meets one of five conditions.
Upon commencement of employment, employee must meet any of the following five conditions:
- Unemployed for the six months immediately preceding hire. If the individual completed a college or similar program and received a baccalaureate, postgraduate, or professional degree, the completion date must be at least 12 months prior to hire;
- Veteran separated from the U.S. Armed Forces in the preceding 12 months;
- Recipient of the Earned Income Tax Credit in the previous taxable year;
- Ex-offender convicted of a felony;
- Current recipient of CalWORKs or general assistance.
RIG can help you apply and negotiate the California Competes Credit. Please contact us today if you would like to apply for this credit.