Work Opportunity Tax Credit (WOTC)
Work Opportunity Tax Credit Program
Did you know that as a franchisor, you are eligible for various tax deductions?
This is when it pays to hire a professional to help you with the tax planning for your franchise. As a business owner, you can benefit from multiple tax deductions such as travel expenses or medical reimbursement plans. But did you also know that as an employer, you can also take advantage of the work opportunity tax credit program?
So what is WOTC? According to ADP, “The Work Opportunity Tax Credit is a federal tax credit available to employers who hire and retain qualified veterans and other individuals from target groups that historically have faced barriers in securing employment.”
We’re going to discuss how employers can benefit from WOTC, the steps required to apply for the program, the target group of employees that can be hired, and the benefits of this tax deduction.
Taking Advantage of WOTC
As a franchisee and a business owner, it is important to have a solid tax plan for your business. Knowing your options and taking advantage of all possible deductions can help your business financially.
WOTC helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability.
The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired.
With all the responsibilities that come with franchise ownership, there is one more critical responsibility to consider: Tax planning.
Tax planning is crucial for your business because It will add tens or hundreds of thousands of dollars into your pocket; and that is money saved to grow your franchise, build wealth, and set up a handsome retirement
At My Franchise CPAs, we make sure that franchisors pay the least taxes possible by conducting:
• A deductions review (home office, travel expenses, hiring children and grandparents, etc)
• A legal entity review: A Legal Entity Review is considering which business entity structure will result in the lowest tax liability.
• A retirement review: Considering what options available to you to save for retirement will result in the lowest possible tax liability.
• TCJA (Tax Cuts and Jobs Act) Review
In addition to all these deduction opportunities for franchisors, WOTC is another option they can qualify for when all requirements are met.
As a franchisor and successful business owners, it is valuable for your company to hire employees from these targeted groups anyway since they bring diversity to your business.
So, What is the work opportunity tax credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
This program helps create economic opportunities and therefore lessens the burdens on the government to provide employment and assistance programs.
The following groups are considered target groups under the WOTC program:
• Qualified short-term and long-term IV-A recipients (Temporary Assistance for Needy Families)
• Designated community residents (DCR)
• Vocational rehabilitation referrals
• Summer youth employees
• Supplemental Nutrition Assistance Program (SNAP) recipients
• Supplemental Security Income (SSI) recipients
• Qualified long-term unemployment recipients
• Consider finding qualified employees through social media outreach, targeted ads, or simply by contacting local groups.
How to Apply for the Work Opportunity Tax Credit
• Find Eligible applicants and go through WOTC screening
The first step towards getting a WOTC is for the employer to obtain certification from a State Workforce Agency (SWA) that an individual is a member of the targeted group, before they claim the credit.
The employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit within 28 days after the eligible worker begins work.
• IRS Form 8850
Submit the completed Form 8850 and either ETA Form 9061 or 9062 to the SWA within 28 days of the eligible new hire’s start date.
• Monitor Employee Hours
Eligible employees should work at least 120 hours during the first year of employment for an employer to claim credits.
• Claim the tax credit
Use IRS Form 5884 when filing annual tax returns to claim the WOTC. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.
• Keep accurate records
In case the IRS decides to audit the credits claimed, be sure to keep copies of all forms and documents submitted to SWAs. Moreover, tracking employee hours correctly will help you avoid issues with the IRS.
Florida Work Opportunity Tax Credit Program
My Franchise CPAs is based in Boca Raton Florida. WOTC laws vary by state so it is important to research current laws based on your location.
Check out these additional forms and resources needed for Florida-based franchises.
To Sum Up
Franchise owners qualify for many different tax deductions and can benefit from a program like WOTC. Hiring groups who have faced difficulties in securing employment is beneficial for your business finances and can also help lessen the burden on the government to provide employment and assistance.
Contact My Franchise CPAs today to start tax planning for your business and let our professionals help you maximize your deductions.
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