Hiring and Zone-Based Credits & Incentives

The federal government and a number of states allow businesses to claim tax credits for hiring members of targeted groups and for conducting business in specifically designated areas. There are a few hiring and zone-based tax credits that can be particularly valuable to a wide range of businesses.

Work Opportunity Tax Credit

The WOTC—a federal credit distributed at the state level—is designed to encourage businesses to hire individuals receiving government assistance to enable them to become more self-sufficient. Depending on which target group the individual belongs to, the maximum credit per new hire can range from $2,400 to $9,600. Target groups include:

  • Members of families that receive Supplemental Nutrition Assistance Program benefits (food stamps)
  • Members of families that receive short- or long-term Temporary Assistance to Needy Families or Aid to Families with Dependent Children (welfare)
  • Qualified (unemployed or disabled) veterans
  • Qualified ex-felons or pardoned, paroled, or work-release individuals
  • Individuals who have completed or are completing vocational rehabilitation programs
  • Qualified “summer youth” ages 16 or 17 years old living in an empowerment zone
  • Individuals receiving Supplemental Security Income
  • Residents of designated communities (individuals living within an empowerment zone)
  • New for 2016: individuals who were unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law during this period

The value of the credit is determined by the target group the employee qualifies under, the number of hours worked, and the wages earned in the period of employment. It must be applied for within 28 days of a new hire’s start date.

Empowerment Zone Tax Credit

This federal credit provides businesses with an incentive to hire individuals who live and work in a federally designated empowerment zone. The credit is equal to 20 percent of the first $15,000 in wages earned in a taxable year if the employee both lives and works in an empowerment zone. Businesses can retroactively claim this credit if they haven’t taken it previously on their federal income tax return, subject to the statute of limitations.

State Hiring Credits

Many states offer their own WOTC-equivalent opportunities. The amount of credit and the type of tax they offset varies by state. For example:

  • Alaska offers an income tax credit of up to $3,000 for the first taxable year for employing new, full-time, qualified veterans.
  • Illinois offers an income tax credit of up to $5,000 for each taxable year a new, qualified veteran is employed and works at least 185 days.
  • New Mexico offers an income tax credit of up to $1,000 for the first taxable year for employing new, full-time, qualified veterans.
  • New York offers a franchise tax credit of up to $2,100 for the first taxable year for employing new full- or part-time qualified, disabled employees.
  • Washington offers a credit of up to $1,500 against business and occupation tax or public utility tax for employing new, full-time, qualified veterans who work at least two consecutive calendar quarters. The credit applies to new hires on or after October 1, 2016.

Other states offer similar hiring credit opportunities that may require more specific qualifications. We can assess your company's qualifications and navigate the process of claiming these and other credits.

MaxCredits: A More Efficient Way to Claim Federal and State Tax Credits

Both the WOTC and the empowerment zone tax credit offer valuable opportunities to boost your business's cash flow. Leveraging these credits used to be a time-consuming process that posed an administrative burden for many companies. Not anymore.

MaxCredits, an industry-leading Web-based tool from Moss Adams, vastly simplifies and streamlines the process. With MaxCredits, new hires enter relevant personal information via a secure Web site and answer a short set of questions to determine whether they qualify your business for federal or certain state wage-based income tax credits or incentives.

Businesses qualifying for tax credits use the IRS-approved DocuSign® Digital Transaction Management platform to electronically apply for relevant credits—removing paper from the process to drive enhanced security and increase compliance. Employers also save additional time and money by screening for other federal and certain state credits simultaneously. A process that used to take up to three weeks can now be accomplished in one day.

Contact us to learn more about MaxCredits and discover how it can benefit your business.

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