As your company crafts its workplace culture by funding various benefits and defining workplace policies, there’s potential to save money. That’s because small businesses can benefit from federal tax credits. The goodwill created by paying for a portion of an employee benefit is already an important motivator. That combined with saving on taxes makes these four employer tax credits valuable tools.
Work Opportunity Tax Credit (WOTC) (form 5884)
- Goal: Encourage small businesses to hire individuals from certain target groups with employment barriers (veterans, disadvantaged workers, disabled and more).
- Eligibility: Must pre-screen employees and apply within 28 days of start date for certification from state workforce agency (SWA). Employee must work at least 120 hours in first year.
- Potential benefit: Tax credit for 25 – 40% of wages depending on target group and hours worked in the first year of employment. Maximum credit from $2400 to $9600 per worker.
Disabled Access Credit (form 8826)
- Goal: Encourage small businesses to provide accessibility for disabled employees and customers.
- Eligibility: Less than 30 full-time employees during preceding year –or– gross receipts less than $1 million during preceding year.
- Potential benefit: Tax credit for 50% of expenses over $250, but not over $10,250. Maximum credit per year is $5,000. Click here for a full list of eligible expenditures.
Employer Differential Wage Payment (form 8932)
- Goal: Encourage small businesses to pay employees while on active duty for 30+ days.
- Eligibility: Less than 50 employees and provides differential wage payments to every qualified employee (Armed Forces, Army National Guard, Air National Guard, commissioned corps of the Public Health Service)
- Potential benefit: Tax credit of 20% up to $20,000 for differential wage payments during the tax year.
Tax Credit for Increasing Research Activities (form 8974)
- Goal: Encourage research and development in small businesses.
- Eligibility: Gross receipts not exceeding $5 million (current year); no gross receipts for past five years.
- Potential benefit: Tax credit of 20% to reduce the employer share of Social Security taxes up to $250,000.
Does your company qualify for any of these tax credits? Before working on your corporate tax return, check out the IRS form links provided for complete details.
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