Tax Breaks for Hiring New Employees
Adding new employees is often a calculated risk for employers. However, various tax breaks can help mitigate the financial risk.
WORK OPPORTUNITY TAX CREDIT
The Work Opportunity Tax Credit allows employers to get a credit against income taxes for a percentage (generally 40%) of first-year wages* up to a maximum amount if they hire members of certain “targeted groups,” including:
- Certain veterans
- Long-term unemployed (unemployed for at least 27 weeks)
- Supplemental Security Income recipients
- Former felons
- Long-term family assistance recipients*
- Designated community residents
- Vocational rehabilitation-referred individuals
- Summer youth employees
To qualify for the credit, employers must obtain certification from a designated state agency as to the hired person’s membership in a targeted group. Form 8850 is used for this purpose and generally must be filed no later than 28 days after the employee begins work.
EMPOWERMENT ZONE EMPLOYMENT CREDIT
Before 2017, businesses within certain “empowerment zones” can claim a tax credit of 20% of the qualified wages paid to the new employee up to $15,000, to a maximum credit of $3,000. The IRS has a list of designated empowerment zones at www.IRS.gov.
* Employment of qualified long-term family assistance recipients may also allow the employer to claim a credit for an additional 50% of qualified second-year wages.
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