Hiring? If you run a startup, you probably should be. Job growth is up, unemployment is down, and our country’s already competitive labor market is on track to tighten even further in the coming months.
Long story short: now is the time to focus on employee recruitment and retention. Fortunately— for once—you can count on the Internal Revenue Service for help. Numerous tax credits cover costs associated with hiring. In fact, the United States tax code is full of benefits and incentives aimed at helping emerging companies like yours create jobs. Check out a few ways the government will literally pay you to hire people:
Get Paid for Creating Job Opportunities
The Work Opportunity Tax Credit (WOTC) benefits companies that hire members of specific “target groups,” or people who possess characteristics that have historically hindered their employment opportunities. For each qualified hire, the business can claim as much as $2,400 (40% of the individual’s first year wages up to $6,000), for a maximum total of $9,600.
- Supplemental Nutrition Assistance Program (SNAP, AKA “food stamps”) recipients
- Temporary Assistance For Needy Families (TANF) recipients
- Residents of Designated Communities such as Empowerment Zones and Rural Renewal Counties Ticket Holders and others with vocational rehabilitation referrals
- Summer youth
This list just scratches the surface of eligibility. There are certain factors, such as the individual's age, period of unemployment, and prison release date, that could disqualify a potential hire. Check in with your tax and accounting partner to determine whether a candidate is actually eligible under WOTC before claiming the credit.
Get Paid for Hiring Veterans and Reservists
Virtually any employer would be happy to welcome a veteran to their organization, but how many employers actively recruit former servicemembers? If you have an open position, you should really consider hiring a veteran—not only for their unique background and skills, but because there’s a good chance they could lower your tax liability.
Many veterans also qualify for the WOTC. But if you hire a veteran with a service-connected disability within one year of discharge, you may be able to effectively double your credit by claiming up to 40% of that person’s first $12,000 in wages. This incentive is known as the Wounded Warrior Tax Credit, and it also provides a credit for the first $24,000 in wages for veterans with service-related disabilities who have received unemployment for more than 6 months. (Be aware that you’ll need to undergo certain verification steps and file additional forms before you claim this credit—speak with your tax and accounting partner for details.).
On top of that, the Activated Military Reservist Credit provides a credit of up to $4,000 to any company that employs active Reserve and National Guard members.
Get Paid by Your State
In addition to federal credits, plenty of states offer their own incentives for job creators. Many of these programs benefit companies that do business in disadvantaged regions or provide jobs to underserved communities, such as veterans and people with disabilities. For instance…
- In California, companies in designated geographic areas (DGAs) can claim up to $56,000 per employee over five years. DGAs tend to be areas with high rates of poverty and unemployment. To find out if you operate within a DGA, use this map. [Source]
- New York will reimburse an employer for up to 160 hours of a new employee’s wages. That’s not all: the state also reimburses employers for on-the-job training, and offers incentives—on top of federal credits—to companies that employ workers with disabilities. [Source]
- In Oregon, the Oregon Investment Advantage offers income tax holidays of up to 10 years for businesses that start within or move to eligible counties within the state. To qualify, an organization must employ at least five full-time employers (and pay them above the current county wage) at a facility that is “the first of [its] kind anywhere in Oregon for that company” and which does not compete with local businesses. Sounds like a great opportunity for an innovative, fast-growing company looking to expand in the West Coast. [Source]
These are just a few of the many state tax benefits out there for employers. To maximize your state tax savings, talk to your tax and accounting partner.
Get Paid for Research and Development
Want to offset your payroll taxes by up to $250,000? Of course you do. The Research & Experimentation Tax Credit (or R&D Tax Credit) allows companies that incur large research and experimentation costs to claim tens of thousands of dollars back by expensing contract research, supplies, computer rentals, or—and here’s the kicker—Social Security payroll taxes.
In order to qualify for this credit, a company must conduct R&D that relates to a specific product or process, focuses on discovery and experimentation, and is technological in nature. Put another way, you can’t claim the credit if what you’re doing has no discrete purpose, does not lead to any real progress, proves something the world already knows, or does not resemble actual science. Check out our Business Owner’s Manual to the R&D Tax Credit to see if your company qualifies.
Interested in claiming the R&D Tax Credit, or any tax other incentive, but are unsure if your organization qualifies? inDinero is here to help! Schedule some time today to discuss your options with one of our financial experts.