Tax Credits Explained
What Are Tax Credits?
Tax credits are a dollar for dollar tax deduction granted from cities, counties, states, and the federal government as an incentive to attract businesses to a particular group or market. Tax credits are different than tax deductions because they lower the full amount of what’s owed rather than reducing the debt by a percentage.
How Do Tax Credits Work?
If you owe $20,000 in taxes, but you have $18,000 in tax credits, you would only owe the $2,000 in taxes. Tax credits are a dollar for dollar reduction from the total sum owed.
Different Types of Tax Credits:
The Work Opportunity Tax Credit (WOTC) is a federal income tax incentive program designed to assist nine target groups find employment by offering employers a reduced tax rate. Businesses can receive tax credits ranging from $1,200 to $9,000 per employee.
The nine target groups:
- A. Qualified recipients of Temporary Assistance to Needy Families (TANF).
- B. Qualified veterans receiving Food Stamps or qualified veterans with a service connected disability who:
- Have a hiring date which is not more than one year after having been discharged or released from active duty OR
- Have aggregate periods of unemployment during the one- year period ending on the hiring date that equal or exceed six months.
- C. Ex-felons hired within one year after conviction or release from prison.
- D. Designated Community Resident – an individual who is between the age of 18 and 40 on the hiring date who resides in an Empowerment Zone, Renewal Community, or Rural Renewal County.
- E. Vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network.
- F. Qualified summer youth ages 16 through 17 who reside in an Empowerment Zone, Enterprise Community, or Renewal Community.
- G. Qualified Food Stamp recipients ages 18 but not 40 on the hiring date.
- H. Qualified recipients of Supplemental Security Income (SSI).
- I. Long-term family assistance recipients.
Federal Empowerment Zone and Renewal Community Incentives
Federal tax incentives for businesses and developers to increase employment and stimulate economic development in distressed areas.
Tax Incentives:
- Renewal Community annual tax credit up to $1,500 for each employee who lives and works in the designated area.
- Empowerment Zone tax incentives up $3,000 in tax credits for each employee who lives and works in the.
- Up to $35,000 tax deduction for property owners developing or renovating within a Renewal Community.
- Capital Gain Exclusions on investment earnings.
State Enterprise Zone Tax Credits
State tax credit incentives offered to businesses locating in a designated distressed geographic area to stimulate commercial activity. Tax advantages and deductions vary by state. Contact us for more information.
State Point of Hire Credits
State tax credits to increase job creation. Incentives range from $50 per employee up to $37,000.
Jobs Tax Credits
Tax advantages and incentives for employers to create and sustain new jobs within a given state. Qualifying businesses typically include:
- Air and Transportation Maintenance Facilities
- Computer Software Development Enterprises
- Data and Information Processing Companies
- Distributors
- Manufacturers
- Movie Industry Studios
- Processors
- Recreational Facilities that impact Tourism
- Research and Development Facilities
- Resort hotels having a minimum of 150 rooms
- Technology intensive facilities
- Telecommunications Companies
- Warehouses
- Wholesalers
