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 email@example.com.
As many employers look to closeout and forget 2020, Maryland employers face yet another challenge as a sizeable hike in unemployment tax rates is coming in 2021.
It's important to note that Governor Hogan signed an executive order (copy below, FAQs) that excludes 2020 employer data from the formula used to determine the 2021 unemployment rate. If the Governor had not done this, all employers would have had an even higher tax rate for 2021.
For employers with zero claims over the prior three (3) years (the measurement period will remain 2017, 2018, and 2019, for 2021) the per annual amount due per employee will increase from $25.50 to $187 per employee for 2021, which is almost 7.5 times the 2020 experience rate.
While obviously not good news, at first glace it might not sound all that punitive at first glance. However, imagine you have 50 employees, all of which require an unemployment contribution. That comes out to an extra $8,075 that employers will have to pay in for 2021. In higher turnover businesses such as retail and hospitality, it's very possible to have on average 10 to 15 employees per year, but because of attrition this equals 50 or more total employees per year, all of which require their own unemployment contribution.
While unemployment rates will reduce over time as we saw a similar situation occur during and after the financial crisis (great recession). Unfortunately, in the short term, this is one more hit businesses are going to have to contend with.
Consider these tips to help offset these costs:
1) Have a plan for 2021, as no plan almost always means no success, and those who are successful are just incredibly lucky.
2) Investigate ways to streamline operations & improve efficiency in the short and medium term. No is not the time for long term decision making if possible, as there is still much uncertainty.
3) Review and make cash savings measures (both for the business, and personally), and do the easiest ones immediately. This doesn't mean slash essential services, but it means giving up the luxuries.
Contact us if you need help with these or similar small business savings strategies.
Travis Raml, CPA