Imagine this: You’re considering two candidates for the same position. Both are similarly qualified and outstanding choices who would be true assets to your company. But one comes with a bonus – a tax credit of up to $9,600. How so, you ask?
Did you know that federal and state tax credits are offered for hiring new employees in targeted worker groups? If you own or manage a payroll firm service bureau, becoming an expert in this area, and advising clients accordingly, can set you apart from competitors and help boost your reputation as a market leader.
The federal Work Opportunity Tax Credit (WOTC) program and multiple similar state-level programs are aimed at incentivizing businesses to hire people in groups that consistently face barriers to employment and are considered at risk for perpetual unemployment or underemployment. These include food stamp recipients, ex-convicts, veterans and those with disabilities. And small businesses with fewer than 50 employees may quality for tax credits on most anyone they hire, depending upon the state or industry. In fact, our firm, Peoria, IL-based Sharp Payroll has helped multiple small business clients receive up to $25,000 tax credits in one year for qualified hires.
Maximum tax credits available via the federal WOTC program range from $1,200 to $9,600, and are paid via a direct reduction of the business tax bill. The credit often goes to the payroll account with the service bureau, then the service bureau passes payment directly to the employer. Some of my favorite experiences at Sharp Payroll are hand delivering sizable tax credit checks to our clients.
So why aren’t these tax credits more widely used? Estimates suggest that less than 10 percent of employers even know that these incentives exist and most new hire credits contain a time expiration provision for filing. Many business owners wrongly assume that their tax preparer understands these new hire credits. But human resources professionals typically know more on this topic than do CPAs or tax professionals simply because the latter don’t work in the employment arena.
A highly qualified payroll adviser who makes it a point to stay up to date is best positioned to be in the know.
Fortunately, it’s not difficult to become an expert in this area. It’s simply a matter of doing your due diligence – researching the US Department of Labor’s Work Opportunity Tax Credits information and contacting applicable state agencies, including client states’ Department of Revenue, Department of Commerce, Department of Economic Opportunity or other similarly named counterparts.
And, while employment and tax-related paperwork can be daunting, the federal and state forms required to apply for these particular credits tend to be short and simple. When signing new clients, Sharp Payroll uses a questionnaire to help clients determine potential hiring areas best suited to create a tax credit opportunity. Popular vendors such as HireTech, an Apex HCM partner, also can help payroll service bureaus effectively navigate this field.
Of course, the lure of a high-dollar tax credit should not be the sole factor, or even a top factor in hiring a new employee. Hiring the right person for the job remains the priority. But if you’ve narrowed your choice down to similarly qualified candidates, a tax credit can swing the decision.
This blog post is guest authored by Joe Sharpe, President of Sharp Payroll. Reach him at firstname.lastname@example.org or visit www.sharppayroll.com for more information on tax credits available to payroll service bureaus and their clients.