Law Extends Several Key Hiring Tax Credits Including Work Opportunity Tax Credit

Several key employment tax credits have been extended with House Resolution (HR) 1865, signed into law on December 20, 2019. These credits include the Work Opportunity Tax Credit (WOTC), federal empowerment zone tax credit, employer paid family and medical leave credit, disaster retention credit, and Indian employment tax credit.

Details on each credit and their significance to employers follow below.

Work Opportunity Tax Credit

The WOTC is designed to encourage businesses to hire individuals receiving government assistance and reintroduce them into the workforce to help support their self-sufficiency. The tax credit is now extended through December 31, 2020.

Depending on which target group an individual belongs, the maximum credit per new hire can range from $2,400 to $9,600. Target groups continue to include:

  • Members of families that receive Supplemental Nutrition Assistance Program benefits, commonly referred to as food stamps
  • Members of families that receive short- or long-term Temporary Assistance to Needy Families or Aid to Families with Dependent Children, commonly referred to as welfare
  • Qualified unemployed or disabled veterans
  • Qualified former felons or pardoned, paroled, or work-release individuals
  • Individuals who have completed or are completing vocational rehabilitation programs
  • Qualified summer youth or 16 or 17 year olds living in an empowerment zone—an economically distressed community designated by the federal government
  • Individuals receiving Supplemental Security Income
  • Individuals unemployed for at least 27 weeks and receiving unemployment benefits
  • Designated community residents, such as individuals living within an empowerment zone

The value of the tax credit is determined by the target group under which the employee qualifies, the number of hours worked, and the wages earned in the period of employment applicable to that target group.

Empowerment Zone Tax Credit

This credit provides businesses with an incentive to hire individuals who live and work in a federally-designated empowerment zone. The tax credit extends retroactively to apply to the period from January 1, 2018, through December 31, 2020.

The credit is equal to 20% of the first $15,000 in wages earned in a taxable year if the employee both lives and works in an empowerment zone. Subject to the statute of limitations, businesses can retroactively claim this credit on their federal income tax return.

Employer Paid Family and Medical Leave Credit

This credit is available to businesses that provide a voluntary paid family and medical leave benefits to qualified employees during the 2018, 2019, and now 2020 tax years.

Depending on the percent of paid leave benefits provided by the employer, the eligible credit may be worth between 12.5%–25% of the qualified wages paid to each qualified employee.

Disaster Retention Credit

This credit provides businesses a tax credit for retaining and paying employees whose physical location of employment was impacted by a natural disaster during 2018 or 2019 and is located within a federally declared disaster area.

The credit is equal to 40% of the first $6,000 in qualified wages for each qualified employee.

Indian Employment Credit

This credit provides a 20% credit to employers for qualified wages and qualified health care expenses associated with employing certain members of an Indian tribe.

The credit may be worth up to $4,000 for each qualified employee paid at least $20,000, but less than $45,000, per year. The tax credit extends retroactively to apply to the period from January 1, 2018, through December 31, 2020.

We’re Here to Help

As many of these credits have retroactive application, certain taxpayers may be eligible for refund claims for their 2018 tax year beyond claiming the credits for 2019 and 2020. Additionally, as certain hiring credit-related forms must be filed with an appropriate state agency within 28 days of a new hire’s start date, it’s important to understand which employees qualify for tax credits and what’s required to claim the credits.

Our tax professionals can help guide you through the processes of claiming credits using our comprehensive web-based tool MaxCredits®. We can help determine if your business’ locations are in federal or state tax-beneficial zones, identify and track qualified applicants, and populate signature-ready forms using the IRS-approved DocuSign® Digital Transaction Management platform for filing with state agencies.

We’ve automated the traditionally paper-based process to drive enhanced security, speed up the turnaround time, and increase compliance.

To learn more about hiring and zone-based credits you may be able to claim, or arrange a complimentary consultation, contact your Moss Adams professional.