This article was updated on June 11, 2018.
Businesses claim billions of dollars in tax credits annually under the federal Work Opportunity Tax Credit (WOTC) program. As a finance leader, you should partner with HR leaders in your organization to work on new ways to promote cost reduction through tax credits, especially credits related to hiring and training costs.
Tax Breaks for Hiring Targeted Groups
The federal government offers several incentives for businesses to lower tax bills when you hire candidates from targeted groups. To explore cost reduction through tax credits, work with HR to determine if your organization gives special hiring attention to candidates from these targeted groups.
The federal WOTC is available to eligible employers who hire and retain certain veterans and people from other target groups who have historically been viewed as facing significant barriers to employment. Businesses can claim tax credits that range from $1,200 to $9,600 depending on the person hired and the duration they've been employed by the new employer.
Targeted WOTC groups include eligible people who are:
- On food stamps
- Live in Empowerment Zones or Renewal Communities
- Vocational rehab referred individuals
- Supplemental security income recipients
- Summer youth employees
- Qualified long-term unemployment recipients
Employers can use the DOL's WOTC Calculator to estimate what they might earn in tax credits under the WOTC program, and must use Form 8850 to screen their applicants for WOTC eligibility on or before the job offer date.
Tax Breaks for Education
Employer tax breaks are also part of the Workforce Innovation and Opportunity Act (WIOA), designed to help educate and train the workforce and match employers with skilled workers to better compete in the global economy. Though not strictly tax breaks, the WIOA also includes flexibility at the local level to provide incumbent worker training and transitional jobs and promote work-based training.
Employees' outside education can also net you a tax break. According to the Internal Revenue Code, employers are allowed to exclude from employees' taxable wages up to $5,250 per year for payment or reimbursement of tuition, fees, books and supplies for undergraduate and graduate level education as part of a qualified educational assistance program.
Using a Tax and Compliance Vendor
Your state might also offer breaks and incentives for eligible employers related to hiring or training, such as point-of-hire credits (WOTC piggybacks) and job-creation credits. But it's up to your organization to stay up-to-date and take advantage of the various opportunities for which you may be eligible.
The National Conference of State Legislatures has a state database of job creation tax credits. Using a tax and compliance vendor can help your organization narrow down the credits and identify available tax credits that you may be eligible for by integrating with your current hiring process through screening employees, calculating credits, helping with program administration and producing an audit trail.
As a financial leader, you should evaluate possible cost-cutting measures for your organization, and tax breaks related to hiring and training could just be one of your most useful fiscal tools.
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