By Myra Tunstall; Financial Strategist
What Is a Tax Credit?
A tax credit is an amount of money that taxpayers are permitted to subtract directly from their computed tax liability. Tax credits are similar to deductions as both reduce your tax liability; however, deductions only lower your taxable income based upon your marginal rate while tax credits reduce the amount you owe in taxes dollar for dollar.
Types of Tax Credits?
Tax credits be either business or personal and refundable or non-refundable. Non-refundable credits can reduce your tax liability no lower than zero, but refundable credits can generate a refund.
What are Business Tax Credits and are they Refundable?
Business tax credits are credits provided by congress to reward businesses by subsidizing a portion of expenditures incurred in certain preferred business activities. Generally non-refundable, tax credits are available for many reasons, including credits to encourage investments in medical and renewable energy research and development, to incentivize the development of low-income housing communities, and to provide rewards for employing individuals who face significant employment barriers, as is the case with the Work Opportunity Tax Credit.
For a list of available credits click here.
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax credit is a federal tax credit available to private-sector businesses to provide incentives for hiring individuals from target groups that face significant employment barriers. The objective of the program is to move the targeted employees towards self-sufficiency and independence while earning a steady income while allowing participating employers to reduce their federal income tax liability.
Through the Work Opportunity Tax Credit Program, employers can earn up to $9,600 in credits per qualifying employee depending upon the hours worked when hiring qualified individuals from targeted groups such as unemployed veterans, recipients of long and short term Temporary Assistance for Needy Families, SNAP (food stamp) recipients, qualified long-term unemployment recipients and many individuals from many other targeted groups.
To see a list of targeted groups click here.
How Will I Know If a Potential Employee is a Member of a Targeted Group?
The Internal Revenue Code Section 51 (d)(13) permits a perspective employer to request the applicant to complete IRS Form 8850 Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
To maximize identification of potentially qualified applicants, consider incorporating IRS Form 8850 into your pre-employment paperwork.
This notice is provided for informational purposes and is not intended to provide specific tax advice.
For more information about the Work Opportunity Tax Credit or other Credits contact your tax accountant or tax attorney.
Comentarios