Are they worth the time and trouble?
By Daniel McCoy
Applying for and hopefully receiving tax credits can be laborious and time-consuming. Is it worth it? The short answer is: It certainly can be!
One of my restaurant clients went back and filed for the Employee Retention Tax Credit for 2021 and received $80,000+ in the form of a direct deposit. Not bad for tracking down a few documents and filling out a few forms.
According to the IRS’s website (irs.gov), “Eligible businesses that experienced a decline in gross receipts or were closed due to government order and didn’t claim the credit when they filed their original return can take advantage by filing adjusted employment tax returns.”
These are for employers for wages paid through September 30, 2021. There is one exception to this rule. If you were a recovery startup business, you can still claim the Employee Retention Credit up to January 1, 2022.
Hiring Help
Another significant tax credit is the Worker Opportunity Tax Credit (WOTC). As employers are returning to a full staff or just having to replenish workers, the WOTC could offer potential pay back for hiring certain individuals. Is this a significant tax credit? According to the U.S. Department of Labor, around $1 billion in WOTCs are claimed each year.
The WOTC offers tax credits that range between $2,400 to $9,600. WOTC is calculated based on what the qualifier is, how many hours the employee works and the amount of wages earned. There are several targeted groups:
- Qualified IV-A Recipient — “Member of a family receiving assistance under a state plan approved under part A of title IV of the Social Security Act relating to Temporary Assistance for Needy Families (TANF). The assistance must be received for any 9-month period during the 18-month period ending on the hiring date.”
- Qualified Veteran —a Veteran who meets any of the following:
- Member of a family receiving SNAP or Food Stamp(s) for at least 3 months during the first 15 months of unemployment
- Unemployed for a period totaling 4 weeks (not required to be consecutive) but less than 6 months in a 1-year timeframe that ended on hire date
- Unemployed for at least 6 months (consecutive or not) in a 1-year period up to hiring date
- Disabled veteran who is eligible to receive compensation for a service-connected disability having been discharged or released from active duty within the last year.
- Disabled veteran eligible for compensation for a service disability who has been unemployed for a total of 6 months or more in the last 1-year period up to hire date.
- Qualified Ex-Felon — person having been convicted of a felony or released from prison because of a felony within the last 1-year period ending with the hire date.
- Designated Community Resident — On date of hire and during employment, resides within:
- An Empowerment Zone
- An Enterprise community
- A Renewal community
- Vocational Rehabilitation Referral — a person who has a physical or mental disability that has been referred to the employer while receiving or upon completion of rehabilitative services under:
- A state plan approved under the Rehabilitation Act of 1973
- An Employment Network Plan under the Ticket to Work program, OR
- A program carried out under the Department of Veteran Affairs.
- Summer Youth Employee — must be:
- At least 16 years of age, but under 18 on the date of hire or May 1, the later of the two
- Only employed in summer, between May 1 and September 15, and
- Resides in an Empowerment zone, enterprise zone or renewal zone
- Supplemental Nutrition Assistance Program (SNAP) Recipient — A qualified SNAP benefits recipient is an individual who on the date of hire is:
- Is at least 18 years old and not yet 40, and
- A member of a family that received SNAP benefits for the previous 6 months OR at least 3 of the previous 5 months.
- Supplemental Security Income (SSI) Recipient — an individual who is the recipient of SSI within 60 days of the hire date.
- Long-Term Family Assistance Recipient — an individual who at the time of hiring is a member of a family that meets one of the following conditions:
- Received assistance under an IV-A program for at least the last 18 consecutive months.
- Or, received assistance for 18 months beginning after 8/5/1997 within less than 2 years since the end of the earliest of such 18-month period.
- Or, “ceased to be eligible because a Federal or State law limited the maximum time those payments could be made, and it has been not more than 2 years since the cessation.”
- Qualified Long-Term Unemployment Recipient — An individual that has been unemployed for at least 27 consecutive weeks at the date of hire and received unemployment payments at some point in that timeframe.
Key facts to remember: You must file the form 8850 within 28 calendar days of employee start date. The Worker’s Opportunity Tax Credit is equal to 40% of up to $6,000 of wages earned by the individual who is a member of one of the above target groups and works 400 hours or more. That equates to $2,400, however less hours mean less credit. Employees must put in at least 120 hours.
What about the $9,600 credit? That comes when you hire a qualified disabled veteran as the credit may be claimed for the first $24,000 of wages, for a maximum credit of $9,600 per worker.
Local and State Programs
There are other tax credit programs to check out as well. Under the Georgia Department of Community Affairs (DCA), there are State and Federal Opportunity Zones (FOZ, and yes, the same ones mentioned in the WOTC) where you can claim a job tax credit of $3,500 per job from the state and the FOZ allows investors to defer taxes through investment. If you purchase a historic building for your restaurant, there’s also a DCA program offering tax credits equal to 25% of qualifying rehabilitation expenses capped at anywhere from $300,000 up to $10 million – and freeze your tax rate for eight years. A similar federal program offers tax credits equal to 20% of qualified expenditures.
There are Job Tax Credits, which are statewide and can be for “any business or headquarters of any such business engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, research and development industries or services for the elderly and persons with disabilities but does not include retail businesses.”
Many county economic development offices offer tax incentives as well. For instance, Cobb County is offering a program to encourage owners of older properties to revitalize them. If handled correctly, the owners would receive a reduction in ad valorem property taxes. Fulton County also has several, including a resale and personal property tax abatement.
In today’s market, with inflation high and rates increasing, the small business owner can feel squeezed. Hopefully, some of these tax credits will offer a breath of fresh air.
Daniel McCoy joined the UGA Small Business Development Center at KennesawState University as a business consultant 2017, after a 21-year successful banking career as a Commercial/SBA Lender and Financial Adviser and 10+ years in upper management in the retail industry. He is a Certified Professional for the Society for Human Resource Management (SHRM), a member of the National Society of Leadership and Success and recently completed the Veteran At Work Certification process. He is also a 2019 Flewellen Award for Consulting Excellence winner. For more on how the UGA Small Business DevelopmentCenter can help your concept, go to georgiasbdc.org or contact daniel at dmccoy@georgiasbdc.org.
