Are You Taking Advantage of This Year’s Federal and State Hiring Tax Credits and Incentives?

Joe Popp | October 11th, 2011

State and federal governments have made a number of tax incentives and credits available to employers in 2011 to help stimulate the stagnating economy. In many cases, your company may not see the tax benefit until it files its 2011 taxes, but this delayed benefit should not stop you from considering them.

Work Opportunity Tax Credit (WOTC)

This federal income tax credit from 2010 was extended in 2011, allowing businesses to claim an income tax credit if they hire a person from one of nine target groups and the individual works a minimum number of hours during the first year of employment. The target groups include members of a family receiving Temporary Assistance for Needy Families, veterans, 18-29 year old food stamp recipients, 18-29 year olds living in an Empowerment Zone or Rural Renewal County, 16-17 year olds employed between May 1 and September 15 who live in an Empowerment Zone, disabled persons referred to an employer after completing state-approved rehabilitation, ex-felons or recipients of Supplemental Social Security.

The qualified wages for the WOTC are based on wages paid to the employee for the first year of employment, and employers receive the tax benefit after the employee completes one year of service. The WOTC qualified wages are generally capped for most target groups and vary by category of group.

State Incentives and Tax Credits

A number of state governments have enacted incentives and tax credits of their own to stimulate employment. The application process can be different among the states, as well as who administers the program. Your tax professional can help you determine what incentives and credits your business may be eligible for, as well as assist you with the application process. Here are some of the programs we’re currently tracking:

Alabama Reemployment Act of 2010. For qualified employees who were unemployed and receiving unemployment benefits or whose benefits expired before the date of hire, the deduction is available for 2011 or 2012, but can be claimed only one year.

California Corporate Franchise Tax Credit. California small businesses that have no more than 20 employees in the preceding tax year can take a $3,000 credit for each new qualified full-time employee hired. The new employee must meet specific wage and hours worked standards. There is no application or certification required to obtain this credit.

DC Job Growth Tax Credit. Projects that bring at least ten new jobs with an average wage of at least 120 percent of the average for DC residents can receive a credit up to 60 consecutive months. The credit is calculated by multiplying 50 percent of the company’s FICA taxes for new employees who reside in DC, with some additional restrictions.

Indiana’s New Employer Tax Credit.  Companies that organize, locate/relocate or expand operations in Indiana and hire at least 10 new full-time Indiana resident employees can receive a credit of 10 percent of wages paid during 24 consecutive calendar months that meet certain conditions of the law. Businesses must apply for the credit before December 31, 2012.

New York’s Excelsior Jobs Program. This program provides four tax credits that include a new job tax credit, investment tax credit, research and development credit and real property tax credit for companies locating in certain distressed areas or are in targeted industries. The credits target manufacturing, financial services, software/new media, scientific research, agriculture, back office operations and distribution centers, and some industries are excluded.

Virginia’s Grant Program. Rather than a tax credit, the state offers grants to small businesses that created at least five new full-time positions within any 12-motnh period after June 2010. The grants range from $500 to $2000 for each new full-time position up to 50 positions, and certain restrictions apply.

Your tax professional can provide you with additional information about these tax credits and incentives and assist you in the application process.

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