Payroll Tax Credits You Might Be Able To Claim
By Jason Arsenault First, what is a tax credit? Business owners are familiar with tax deductions and exemptions which reduce your taxable income. Something like office supplies is a common tax deduction, and life insurance proceeds would be tax exempt. What makes a tax credit different is that you get to subtract it from the amount of tax you owe. Let’s say you have a tax credit of $400, that means you reduce your tax burden by $400. The federal government offers tax credits through payroll if you meet certain criteria. We will look at the Work Opportunity Tax Credit (WOTC) and the Indian Employment Credit. The WOTC targets certain groups of potential employees: A member of a family that is a Qualified Food Stamp Recipient Qualified Veterans
Qualified Ex-Felons, pardoned, paroled or work release individuals Vocational Rehabilitation Referrals Qualified Supplemental Security Income (SSI) Recipients
Long Term Family Assistance Recipient (TANF) Qualified Long-Term Unemployment Recipient
This credit is designed to bring in an employee into the work force that has faced struggles gaining employment. The Indian Employment Tax Credit targets: Enrolled members of an Indian tribe or the spouse of a member of an Indian Tribe Performs substantially all of his or her services for the employer within an Indian Reservation Has his or her main home on or near that reservation while performing those services This credit is worth up to $4000 and requires filing form 8845 or 3800 depending on the business structure. Most small business owners don’t have a human resource department and many times aren’t aware of the different tax credits made available to them. Make sure you take time with your CPA to find out what credits are available to you. The federal government pushes its agenda by making these credits available and the money you can save can be significant. For example, you can also get a tax credit for EmployerProvided Childcare Facilities and Services, Small Employer Health Insurance Premiums, Retirement Plan Startup Costs and Research and Development. Of course, you are not going to be eligible for all of these. However, it is a good idea for any business owner to know what is out there and maybe make plans on how you could incorporate these credits into your business moving forward.
You will have to do some up-front paperwork to get these credits. This will include filing Form 8850 within the first 28 days of the employee getting hired. The form is filed with your state agency to verify the employee is part of a targeted group. Additional filing will be required when your tax return is filed. The credit will depend on a few factors like time working, salary, and which targeted group the employee belongs to. You could see a credit ranging from $1,200 to $9,600.
April 2020
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