With the recent passage of the Setting Every Community Up for Retirement Enhancement Act, or SECURE Act for short, into law, several tax credit opportunities originally set to expire at the end of 2019 have been extended through tax year 2020. Business owners should be aware of these potential tax saving opportunities, as the resulting dollar-for-dollar tax credits can be quite valuable, not to mention the positive life influence the related policies can have on employees.
Originally introduced in 1996 and reauthorized many times since then, the Work Opportunity Tax Credit (WOTC) is a great way for business owners to contribute to the well-being of their communities by hiring workers from certain groups that historically have seen barriers to gainful employment. These groups include military veterans, individuals with criminal backgrounds, food stamp recipients, workers with disabilities and the long-term unemployed. The tax credit for hiring members of these groups ranges from $1,200 to $9,600 per eligible employee, depending on the number of hours worked and the target group they belong to. It’s not quite as simple as just hiring an employee from one of these groups however – WOTC eligible hires must be pre-certified prior to their first day of work, and there is a significant amount of documentation required in order to claim the credit. For these reasons, business owners interested in the WOTC need to start early, get organized and should consider engaging the services of a specialized WOTC service provider to handle the intricacies of the process.
Another credit extended through 2020 is available for employers who provide their employees with paid Family and Medical Leave (FMLA). Because this is tax law there are many requirements and restrictions that must be abided by in order to be eligible for the FMLA credit, many of which are related to your human resources policies and procedures. Consulting with an FMLA specialist is recommended if you are interested in this credit, as the requirements are complex. If you do your homework and become eligible to claim the credit however, you can look forward to a credit of up to 25% of the cost of each hour of paid family leave provided.
Lastly, Empowerment Zone credits have also been extended through 2020 by the SECURE Act. This particular credit will not be available to all employers, as the employer must be doing business within a designated Empowerment Zone in order to be eligible. An Empowerment Zone is a geographical area of significant economic distress – characteristics of which include high levels of unemployment, high rates of poverty and crime and a declining population. These areas are officially designated by the United States Department of Housing and Urban Development. If you are doing business in an Empowerment Zone, you may be eligible for a tax credit of up to $3,000 per employee hired who lives and works within the designated zone. Unlike WOTC, employees are not required to be pre-certified for this program, however there are still numerous rules and regulations that must be followed in order to claim the credit.
Careful planning and execution must be taken to ensure that the proper documentation and tax filings are completed in order to successfully claim these credits. For any questions regarding the SECURE Act, employer tax credit opportunities, or other tax and accounting issues, please don’t hesitate to contact your Henry+Horne tax professional.
Austin Bradley, CPA