Two key employment tax credits have been extended under the Protecting Americans from Tax Hikes Act of 2015 (PATH), signed into law December 18, 2015: the Work Opportunity Tax Credit (WOTC) and the empowerment zone tax credit.
The WOTC applies to businesses that hire members of targeted groups, and the empowerment zone tax credit applies to organizations conducting business in designated areas. In addition to the extension, a new target group was added to the WOTC, broadening the pool of hires that can qualify for the credit.
WOTC
This credit is designed to encourage businesses to hire individuals receiving government assistance so they can become more self-sufficient. The PATH Act extends the tax credit through December 31, 2019.
Depending on which target group an individual belongs to, 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 (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,” that is, individuals 16 or 17 years old living in an empowerment zone
- Individuals receiving Supplemental Security Income
- Designated community residents (such as individuals living within an empowerment zone)
The PATH Act also creates a new target group: individuals who have been unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law during that period.
The value of the tax 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 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, 2015, through December 31, 2016.
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. Subject to the statute of limitations, businesses can retroactively claim this credit on their federal income tax return. This credit can be claimed in addition to various state-level enterprise zone credits, which can be worth up to 50 percent of a qualifying employee’s hourly wage.
We’re Here to Help
Because 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 and what’s required to claim the credits well in advance of a new hire’s start date. Employers that collected this information throughout 2015 in anticipation of the extension will likely be able to use that information to claim the credit retroactively if the IRS and Department of Labor grant the transition relief opportunity as with prior extensions.
Using our comprehensive Web-based tool MaxCredits®, our tax professionals can determine if your locations are in federal or state tax–beneficial zones, help you 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 local Moss Adams professional. Or reach out to:
Rob O’Neill
National Practice Leader, Tax Credits & Incentives
Partner, State & Local Tax Services
(503) 478-2339 | rob.oneill@mossadams.com
MaryCaitlin Willcuts
Manager, Tax Credits & Incentives
(503) 478-2309 | marycaitlin.willcuts@mossadams.com