Why Small Businesses Should Start Hiring Now
Last month I told you about the potential tax benefits of hiring unemployed workers through the recently passed HIRE Act. This month I'm going to tell you about other tax benefits you may be eligible for by hiring employees covered by the Work Opportunity Tax Credit.
The WOTC was designed to encourage the hiring of people from disadvantaged groups or backgrounds. These groups currently include:
-Recipients of Temporary Assistance for Needy Families
-Disabled or unemployed veterans
-Food stamp recipients
-Residents of a designated Empowerment Zone, Renewal Community or Rural Renewal County
-6- to 17-year-old summer youth
-Ex-felons
-Social Security Income recipients
-Hurricane Katrina employees
-Disconnected youth between the ages of 16 and 25
The Work Opportunity Tax Credit is very specific in determining who is a qualified member of the above groups. For more detailed information on eligible new hires, check with the Department of Labor. Eligibility can be a little restrictive, but the tax benefits can be generous. For example, tax credits can be:
-Up to $2,400 for each new adult hire
-Up to $1,200 for each summer youth hire
-Up to $4,800 for each new disabled veteran hire
-Up to $9,000 for each new long-term TANF recipient hired over a two-year period
There are no limits on how many employees you may claim the WOTC for, so if you add three summer youth to your staff, for example, you could reduce your company's tax obligations by up to $3,600. In addition to these federal tax incentives, 39 states also offer state credits for hiring employees from specific disadvantaged groups. Find out what tax benefits your state is offering to increase your overall benefits.
Claiming these benefits does involve a little work, but the process is fairly straightforward. For directions on figuring out your credit amounts and claiming the WOTC, you can visit the United States Department of Labor website.
Just like the HIRE Act, the Work Opportunity Tax Credit in no way covers the cost of hiring an employee, so you should never hire new staff just to claim the credit. However, if you are looking for employees, you can greatly reduce your tax bill by making an effort to recruit candidates from these groups. In addition to incredible tax savings, hiring people in one of the groups above gives you the chance to make a big difference in your community.