A Little Known Strategy: How to Save Tax Dollars and Improve Your Employee Benefits Plan
Posted in: Employee Benefits
A huge component of running a successful business is incentivizing and retaining good employees. Most employers create this incentive by offering quality benefits packages, which boost employee morale, minimize turnover rate, support healthier lifestyles, lead to better job performance and ultimately improve the profitability of the business.
However, in light of the healthcare reform, attractive plans are becoming more expensive and difficult to offer without compromising quality of care. If this is a familiar-sounding situation, there is a solution you may consider – applying for WOTC gives employers the opportunity to allocate tax dollars towards securing a better healthcare plan for their employees.
What is WOTC?
Last December, the Work Opportunity Tax Credit program (WOTC) was modified and extended until 2019. WOTC is available to private sector employers who hire and retain individuals from target groups with significant barriers to employment. Once an employer hires an individual from a target group, the employer can receive the tax credit. The target groups include:
- Unemployed Veterans (including disabled veterans)
- Temporary Assistance for Needy Families (TANF) Recipients
- Food Stamp (SNAP) Recipients
- Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
- Vocational Rehabilitation Referred Individuals
- Supplemental Security Income Recipients
- Summer Youth Employees (living in Empowerment Zones)
Although over a billion dollars have been reserved for WOTC, I still see many eligible companies not taking advantage of it or not even being aware it exists.
WOTC: A win-win solution
There are three key benefits to this program:
- Potential for reduced tax liability and better health coverage
Employers who hire target group employees may be eligible to reduce their federal income tax liability by as much as $9,600 per employee hired. This reduction allows employers to allocate the savings towards improving health coverage for their employees.
- Employers make the hiring decision
You have the power to hire the candidates that are the most qualified for the job. Plus, WOTC reduces your cost of doing business by requiring minimal paperwork.
- The economy benefits
WOTC benefits both employers and job seekers. It helps American workers find and retain good jobs while fostering economic growth and productivity.
The amount of the tax credit that employers can claim depends on three things:
- The target group of the individual hired
- The wages paid to the individual
- The number of hours the individual worked during the first year of employment
Employees must work at least 120 hours in the first year of employment for the employer to qualify to claim the tax credit with the IRS. After the employee has worked at least 120 hours, the employer can claim a tax credit equal to 25% of the new hire’s first year of qualified wages. Depending on the eligible target group, the maximum tax credit of first year wages is between $750 and $6,000.
After the employee has worked at least 400 hours, the employer can claim a tax credit equal to 40% of the new hire’s first year of wages. Depending on the eligible target group, the maximum tax credit on first year wages is between $1,200 and $9,600.
For Long-term Temporary Assistance for Needy Families (TANF), the tax credit is available to companies in the second year of employment. As an employer, you can claim a tax credit equal to 50% of second year wages, up to the maximum tax credit of $5,000.
If you think WOTC might work for your business, take a look at the relatively simple application process.
At PSA, we care about the success of your business, and that is why we’d like to draw your attention to this little-known tax credit. It can help create jobs for deserving members of your community while saving money to put towards improving your benefit offerings. If you have any questions or need assistance with WOTC, contact me at JGreif@psafinancial.com.