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No one could have predicted the challenges and changes that businesses were confronted within 2020. Now, more than ever, businesses are looking for every possible opportunity to increase their profitability. Federal tax credits like the Work Opportunity Tax Credit (WOTC) Program, Empowerment Zone, Indian Employment, and Disaster Relief Employee Retention Credits reduce a business’s tax liability.

The Work Opportunity Tax Credit Program has been around since 1996, and with over 2 million WOTC certified individuals per year, it is a widely utilized credit. Employers can earn $2,400-$9,600 per certified individual. Historically 74% of WOTC eligible individuals were certified as members of households receiving public assistance under the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). However, during the last three quarters, increased certification has occurred in the long-term unemployment recipient (LTU) category. Anyone unemployed for 27 consecutive weeks or more at the time of hiring and received unemployment compensation during some or all of the unemployment period qualifies their new employer for a tax credit of up to $2,400. Dramatic increases in WOTC eligibility are anticipated during 2021, particularly in the LTU category, and businesses should cash in on these lucrative credits.

In addition to growth in WOTC, newer refundable credits have emerged to aid businesses that may not have a tax liability. Sick Leave and Family Leave Tax Credits and Employee Retention Credits (ERC) provide immediate payroll tax relief and even refunds if credits exceed payroll tax obligations.

The Consolidated Appropriation Act and American Rescue Plan Act expanded the $5,000 Employee Retention Credit that qualified employers could claim in 2020 to $7,000 per quarter in 2021. There were also other changes for ERC in 2021. Employers are eligible if their business operations have been fully or partially suspended because of a government order or the business experiences a 20% reduction in quarterly receipts compared to a base period. The refundable credit of up to 70 percent of $10,000 in qualified wages and allocable health plan expenses per employee can be claimed against the employer share of Social Security tax in the first and second quarter and claimed against the employer’s share of Medicare tax in the third and fourth quarters of 2021. If ERC exceeds the employer’s share of taxes, the excess is treated as an overpayment, and a refund is available. The size of a business dictates which wages can be claimed. Businesses with more than 500 employees can only claim ERC for wages paid to employees when they were not providing services. Smaller businesses (500 or fewer employees) can claim a credit for all wages paid to employees whether they’re actively working or not. Employers that received Paycheck Protection Program (PPP) loans can now qualify for ERC for wages that are not paid for with forgiven PPP loan funds. Employers are also restricted from claiming ERC on wages used for WOTC, Sick Leave, or Family Leave payroll tax credits.

The evolving complexities and interactions of these credits can be daunting and have caused some businesses to avoid them. Our team can simplify the process and maximize these credits for your business. Contact CCC today to learn more.


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