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September 2019

What You Need to Know About the Work Opportunity Tax Credit (WOTC)

Here at the Tax Credit Group, we spend a lot of time talking about the Work Opportunity Tax Credit, also known as the WOTC, and what it does. We talk about it so much that it often gets ingrained in our speech and we sometimes forget that other people don’t know what it is or what it means.

What is the Work Opportunity Tax Credit (WOTC)?

The WOTC is a tax credit that’s given to employers for hiring employees from specific groups such as veterans, ex-felons, people on food stamps, and the long-term unemployed.

The IRS has a whole list of people who qualify for the WOTC and if you want to take a look just click here.

WOTC Form 8850

To claim someone as a WOTC, you first have to have that person screened by the IRS. That’s why you’ll hear the term Form 8850 a lot. It’s the form you must fill out and file with the IRS so that the agency can approve or deny your plans to claim an employee as a tax credit.

You must get this done quickly. The IRS has a time clock on this kind of paperwork. You have 28 days from the employee’s first day of work to file the Form 8850 with the employee’s “state workforce agency”.

Is the WOTC tax credit refundable?

In a previous post, we talked about the difference between a tax credit and a tax deduction. When it comes to a tax credit, if you have enough of them, they can drop the amount of money that you owe to the IRS below zero. This means the IRS could owe you a refund.

The Congressional Research Service lays out all the details, but the bottom line is that the WOTC is non-refundable except in certain, very specific circumstances. Non-refundable means that once you hit zero with your tax bill, that’s it for the year.

WOTC Form 5884-C

Now the one exception is that certain tax-exempt employers can receive a refundable WOTC. If you do, then you’ll need Form 5884-C.

If you think you’re in that situation, you should contact your CPA for clarification or us here at the Tax Credit Group.

Carrying forward the WOTC

While you cannot go below zero, you can carry the WOTC back one year on your taxes or forward up to 20 years according to the Tax Foundation. That means if you drop your taxes owed down to zero in one year and use the rest of the credit for the next year’s taxes. That can continue until you use all the tax credits or hit the 20-year mark.

Does WOTC benefit the employer?

The financial benefit of the WOTC varies depending on the employee and how many hours the employee works in his or her first year of employment.

According to the Tax Foundation, “The size of the tax credit is 25 percent of the qualified employee’s first year wages if the employee works between 120 and 400 hours of that year. This grows to 40 percent of the employee’s first year wages if the employee works more than 400 hours of that year.”

This is per employee, so if you employ multiple people that qualify for the WOTC, you stand to see a substantial credit.

The IRS caps the amount of WOTC a company can claim, and it varies depending many different factors. Be sure to check with your CPA or reach out to us if you’re not sure.

Piggy-back WOTCs

The other benefit that a company can receive from the WOTC is the piggy-back credit. We talk about WOTC piggy-back credits in a previous blog post, but the basic idea is that states also offer WOTCs for state taxes. Sometimes all it takes is applying to the federal program to qualify for the state benefits as well.

Does WOTC benefit the employee?

When it comes to taxes, the WOTC doesn’t benefit the employee, just the employer. The employer is the only one that gets to claim the tax credit.

However, the WOTC still benefits employees. An employer looking to use the WOTC they start actively seeks out employees who fall into one of the categories designated by the IRS. That’s the whole point of the WOTC, to get some of the underemployed workforces such as veterans and ex-felons, employed.

What the WOTC does is offer more and more diverse employment opportunities to key groups.

Top 5 Job Categories for Veterans

Once their years of service are over, many veterans are still young enough to enter the workforce, and start a second career. But figuring out what that second career is can be tough.

Here are five jobs categories that have plenty of opportunities for veterans

Operations Manager

According to the site GI Jobs, Military Friendly Employers are looking for managers all over the country. Job titles that fall into this category include Business Manager, Facilities Manager, General Manager, Plant Superintendent, Production Manager, and Store Manager.

Operations Managers tend to coordinate between departments to make sure production goes smoothly.

Average Pay, Industry Growth & Education Requirements for an Operations Manager

GI Jobs says the median annual salary for an Operations Manager is $100,410.

The Bureau of Labor Statistics projects job growth of 5 to 9 percent through 2026.

You’ll likely need a college degree for this job, but you may also qualify if you have equivalent operational and leadership experience in the military.

Customer Service Representative

GI Jobs ranks Customer Service Representative as the second hottest job for veterans.

Customer Service Representatives answer phones, reply to calls and emails or respond to customers online.

Common customer service job titles include Sales Facilitator, Account Representative, Member Services Representative, and Customer Care Representative.

Average Pay, Industry Growth & Education Requirements for a Customer Service Representative

Truthfully, the pay for a Customer Service Representative isn’t great. The median pay is $32,890 annually.

But the industry is hot. The Bureau of Labor Statistics believes there will be a 5 percent job growth through 2026. And skilled Customer Service Representatives tend to move up the ladder quickly.

Plus, the average education requirement for a Customer Service Representative is a high school diploma, something you already had when you enlisted in the military.

Computer Information Systems Manager

GI Jobs says Computer Information Systems Managers help manage a company’s computer systems. When you’re looking for a job in this field, look for job titles like Information Technology (IT) Manager, Technical Services Manager, Information Systems Director, IT Director, and Chief Technology Officer.

Average Pay, Industry Growth & Education Requirements for a Computer Information Systems Manager

According to the job search engine Monster, the average IT Program Manager earns $96,300 annually.

The industry is growing. The Bureau of Labor Statistics thinks the IT field will grow by 10 to 14 percent through 2026, that’s more than most fields.

Most IT managers will need a bachelor’s degree in computer or information science and experience.

However, there are ways to get your degree online before you even leave the military. Clearance Jobs has a list of great colleges that offer online degrees in the STEM (Science, Technology, Engineering, and Math) fields including San Francisco State University, University of New Haven, and Florida International University.

Accountant/Auditor

This one falls into the finance field, so you’ll want to be strong in math or at least love it. Accountants and auditors track the money and analyze the financial records of organizations.

Job titles include Accountant, Auditor, Business Analyst, Certified Public Accountant (CPA), Financial Analyst, and Budget Analyst.

Average Pay, Industry Growth & Education Requirements for an Accountant/Auditor

GI Jobs says the median annual salary of an Accountant/Auditor is $69,350 and it’s a growing industry. The Bureau of Labor Statistics predicts a 10 percent job growth in the industry through 2026.

You do need a four-year college degree to take on a job like this. If you’re looking to become a CPA, there’s more work required because there are certification requirements that vary from state to state.

The good news is, once you get your degree many accounting firms will allow you to work full-time while you work toward your CPA and help train you along the way.

Computer Systems Analyst

This one is similar to the Computer Information Systems Manager in that it works with a company’s IT systems. A Computer Information Systems Manager is constantly looking for ways to improve the computer systems within an organization and make things run more efficiently.

Job titles in this field include Computer Analyst, Business Systems Analyst, Applications Analyst, Systems Engineer, Information Systems Analyst, and Computer Systems Consultant.

Average Pay, Industry Growth & Education Requirements for a Computer Systems Analyst

GI Jobs claims the median annual salary for a Computer Systems Analyst is $88,270.

The Bureau of Labor Statistics believes the industry will grow by 9 percent through 2026.

To get a job as a Computer Systems Analyst you’ll need a four-year degree in computer or information science. Some skills that you acquired while in the military may translate over to a job in this field and may count in place of some of the prerequisites in college so be sure to ask.

Companies Hiring Veterans

Several companies make it a point to hire veterans.

According to Glassdoor, Walgreens, Booz Allen Hamilton, Power Home Remodeling, The Home Depot, and the U.S. Department of Veterans Affairs are all known for hiring veterans.

The site Military Benefits says American Corporate Partners teams up with major corporations to hire veterans. Among its affiliates, Pepsi, Coca-Cola, Lockheed Martin, Johnson & Johnson, and UPS.

Why 2019 is the Year to Harness the Sun

There are plenty of tax credits out there for businesses, but if there’s one that you want to take advantage of in 2019, it’s the Solar Investment Tax Credit (ITC). That’s because the credit is at its peak this year and in 2020 it’s going to drop.

What is the Solar Investment Tax Credit?

In 2006, the federal government enacted the tax credit to help businesses and residents switch to solar power.

It allows for a 30 percent tax credit for the installation of solar in a residence or business. The rule is that you must “commence construction” before December 31, 2019, to be eligible for the full 30 percent tax credit.

The Solar Investment Tax Credit is Phasing Out

After this year, the tax credit will slowly phase out.

It will step down to 26 percent in 2020 for both commercial and residential.

In 2021, it will step down to 22 percent for both commercial and residential.

In 2022, the residential credit completely disappears and the commercial credit drops down to 10 percent permanently.

All of this bars an act of Congress, but at this time it looks like this is how things are going to go.

How Do I Qualify for the Solar Investment Tax Credit?

To claim the Solar ITC, you must install the photovoltaic (PV) solar panels. The U.S. Office of Energy Efficiency & Renewable Energy says, “When the sun shines onto a solar [PV] panel, photons from the sunlight are absorbed by the cells in the panel, which creates an electric field across the layers and causes electricity to flow.”

What Qualifies for the Solar Investment Tax Credit?

The Solar ITC doesn’t just cover 30 percent of the cost of the solar panels but also covers 30 percent of the work needed to get the panels installed and 30 percent of the installment of the energy storage systems that accompany the panels.

Most solar providers can give you details on what is and is not covered under the Solar ITC.

Do I Have to Use a Specific Contractor to Qualify for the Solar Investment Tax Credit?

No. Unlike some programs, the federal government does not have specific contractors that it requires you to use to qualify for the tax credit. It’s in your best interest to find a reputable contractor that will offer a competitive price, but that’s just good business practice, not something the federal government requires.

Will I Still Receive the Solar Investment Tax Credit if I Lease the Solar Panels?

No. The person who pays for the solar panels is the one that gets the credit. If you’re leasing from the solar company or even leasing to own, it’s the solar company that will receive the tax credit.

If you’re leasing to own, it may be in your best interest to shop around for a solar company that will work the tax credit into the cost of the installation so that the 30 percent credit goes toward paying off the cost of the installation.

State Solar Benefits

That 30 percent tax credit is just what the federal government offers, many states in the U.S. offer their own tax credits and incentives for businesses to add solar power.

The Dsire USA website has a list broken down by state here.

Is the Solar Investment Tax Credit Worth It?

Of course, there’s no reason to install solar panels if you don’t end up saving money in the end.

According to the site Energy Sage, there’s a large initial outlay of cash for solar installation but anywhere between 5 and 10 years after the investment, you should hit a breakeven point.

How much you pay out initially is dependent on how large of a building you’re putting solar panels on. While the breakeven point will depend on the roof size, amount of shade on that roof, and the initial outlay of cash.

To determine if the Solar ITC is worth it for your business, it’s important to take all factors into account. Think about how much money you’ll have to pay upfront and how long it will take to recoup that investment. You also want to look at how much you stand to save every year in electricity costs.

Increased Appraisal Value

You should also look at possible long term benefits. According to a study published in the Appraisal Institute’s Magazine, the addition of solar panels increased the value of homes across six states.

It stands to reason that solar panels could also increase the value of your commercial property.

As always, the advice in this post is a general overview and cannot be considered advice specifically for your business. It’s important that before you take any steps, you consult your accountant or contact us here at the Tax Credit Group. We’re always happy to answer any questions you may have.

If you’re looking for other ways to help the environment, be sure to check out our post Ways to Go Green and Save Your Business Money.

And if your company spends a lot of money every year on transportation, it might be a good idea to look at our post on Alternative Motor Vehicle Tax Credits.

The Indian Employment Tax Credit

Employers who hire Native American Indians are well advised to look into whether they qualify for the Indian Employment Tax Credit (IEC). As with other tax credits, qualified employers may receive a certain monetary incentive when they file their annual taxes.

What Exactly is the Indian Employment Credit?

The IEC is a monetary incentive provided in the form of a tax credit. It was first created and introduced in 1993. It is offered by the United States federal government to employers that hire employees who are registered Native Americans (referred to as “American Indians” or “Native American Indians” in IRS documentation). The credit provides a dollar-for-dollar reduction in the employer’s business taxable income.

Like many other tax credits, it was designed to incentivize employers to hire certain workers. These workers traditionally face barriers to employment. Credits create a win-win situation for both employees and employers. Employers who may consider hiring certain groups they have not considered before.  For employees, who may have an easier time finding work.

How Much is the IEC Worth?

The amount of the Indian employment credit is equal to 20% of the excess (if any) of:

  • The sum of qualified wages paid during the taxable year and the sum of qualified employee health insurance costs paid during the taxable year
  • The sum of qualified wages and qualified employee health insurance costs that were paid by the employer during the calendar year

It is important to note that for the purposes of this credit, qualified wages are all wages paid to a qualified employee, except for who also qualify for the Work Opportunity Tax Credit, which is reported using IRS Form 5884.

Who Qualifies for the IEC?

In order to qualify for this tax credit, the employee must:

  • Be either themselves a registered Native American or the spouse of a registered Native American (be an enrolled member of an Indian tribe). The term “Indian tribe” may include:
    • Any Indian tribe, band, nation, pueblo, or other organized community or group, including Alaska Native villages
  • Live on or near a Native American reservation while performing the services of their job
  • Complete all services for an employer within that reservation

Certain employees are not eligible. The term “qualified employee” does not include:

  • Individuals who receive wages in excess of $40,000
  • Those whose wages from the company do not meet certain thresholds that are specified by the IRS
  • Any employee who is a 5% owner of the company
  • Those whose work is related to certain gaming activities:
    • Services which involve the conduct of Class I, II, or III gaming as defined in section 4 of the Indian Gaming Regulatory Act
    • Services that are performed in a building that houses such gaming activity

How Do I File for This Tax Credit?

Although the IEC has the one name, it is reported differently, depending on the employer’s business structure:

  • S Corporations and Partnerships must use IRS form 8845
  • Employers that are trusts or estates report the credit on either form 8845 or form 3800, the General Business Credit, if the source credit comes from a beneficiary
  • Other types of businesses report using IRS form 3800

Anything Else I Need to Know?

It is important to understand that the Indian Employment Credit initially expired on December 31, 2007. However, it has been extended several times through acts of Congress. Currently, the IEC is indeed in effect as of 2018. If you are unsure whether the credit is expired, you can check on the IRS’s page for commonly used items which may be expired. This page is regularly updated, especially as the tax season approaches each year.

If you’re unsure whether you qualify for the Indian Employment Tax Credit, give the Tax Credit Group a call. We can help you determine your eligibility.

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