You can claim the potentially lucrative federal Work Opportunity Tax Credit (WOTC) for some of the wages paid to the individual who is part of a targeted group.
Here’s what you need to know to make the WOTC a tax saver for your business
The credit generally equals 40 percent of qualified first-year wages paid to an eligible employee, up to a maximum wage amount of $6,000.
The maximum credit is $2,400 (40 percent x $6,000).
The credit is reduced to 25 percent of qualified first-year wages for an employee who completes at least 120 but fewer than 400 hours of service.
In this situation the maximum credit is $1,500 (25 percent x $6,000).
You can claim the WOTC only if you hire a member of a targeted group. Targeted groups include the following:
This link contains links to the names, addresses, phone and fax numbers, and email addresses of the WOTC coordinators for each of the SWAs.
Exceptions to the General Rule on Credits
There’s a higher limit of $12,000 for first-year wages paid to a qualified veteran who is entitled to compensation for a service-connected disability and was discharged or released from the military within the past year.
There’s an even higher limit of $14,000 for first-year wages paid to a qualified veteran who was unemployed for at least six months in the prior year.
If a qualified veteran both has a service-connected disability and was unemployed for at least six months in the prior year, the limit for first-year wages is $24,000.
The WOTC for a long-term family assistance recipient equals 40 percent of qualified first-year wages, up to a maximum wage amount of $10,000.
In addition, for long-term family assistance recipients, the WOTC can be claimed for 50 percent of qualified second-year wages, up to a maximum wage amount of $10,000.
The WOTC for a qualified summer youth employee (a 16-year-old or 17-year-old who lives in an empowerment zone) equals 40 percent of first-year wages paid during any 90-day period between May 1 and September 15, up to a maximum wage amount of $3,000.
If you would like my help with the WOTC, please don’t hesitate to contact us at firstname.lastname@example.org.
The mileage rate decreased 1.5 cents from 2020 for Business use mileage, and 1 cents for medical, or moving purposes for qualified active duty members.
December 22, 2020
WASHINGTON — The Internal Revenue Service today issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
Courtesy of the Tax Foundation | https://ramlcpa.link/jq2
2021 Federal Income Tax Brackets and Rate
In 2021, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly.
2021 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households
2021 Standard Deduction and Personal Exemption
The standard deduction for single filers will increase by $150 and by $300 for married couples filing jointly (Table 2).
The personal exemption for 2021 remains eliminated.
2021 Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.
The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
The AMT exemption amount for 2021 is $73,600 for singles and $114,600 for married couples filing jointly (Table 3).
In 2021, the 28 percent AMT rate applies to excess AMTI of $199,900 for all taxpayers ($99,950 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2021, the exemption will start phasing out at $523,600 in AMTI for single filers and $1,047,200 for married taxpayers filing jointly (Table 4).
2021 Alternative Minimum Tax Exemption Phaseout Thresholds
2021 Earned Income Tax Credit Parameters
The maximum Earned Income Tax Credit in 2021 for single and joint filers is $543, if the filer has no children (Table 5). The maximum credit is $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. All these are relatively small increases from 2020.
2021 Child Tax Credit
The child tax credit totals at $2,000 per qualifying child and is not adjusted for inflation. However, the refundable portion of the Child Tax Credit is adjusted for inflation but will remain at $1,400 for 2021.
2021 Capital Gains Tax Rates & Brackets (Long-Term Capital Gains)
Long-term capital gains are taxed using different brackets and rates than ordinary income.
2021 Qualified Business Income Deduction (Sec. 199A)
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $164,900 of qualified business income for unmarried taxpayers and $329,800 for married taxpayers (Table 7).
2021 Annual Exclusion for Gifts
In 2021, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $159,000 for gifts to spouses who are not citizens of the United States.
Travis Raml, CPA