Boost Your Tax Credits with WOTC and FEZ
First, many thanks to Karlee Hubble and Abigail Fischbeck for authoring this post.
The Work Opportunity Tax Credit (WOTC) and Federal Empowerment Zone (FEZ) Tax Credit are two underutilized resources within many industries. Many employers either don’t know about these general business tax credits or they don’t know the necessary steps to claim them.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit allows employers to reduce their federal tax liability by up to $9,600 per eligible employee when they hire people from targeted categories and employ them for at least 120 hours in their first year of employment.
When employers hire from eligible groups of employees and follow the compliance steps, they can save taxes. To claim the credit, employers need to update their onboarding process so new employees can voluntarily disclose they fall into one of the groups.
Eligible employee groups
- Long-term unemployment recipients (27 consecutive weeks or more)
- Short-term Temporary Assistance for Needy Families (TANF)
- Qualified veteran (discharged from active duty within one year of hire date)
- Disabled veteran
- Unemployed disabled veteran
- Unemployed veteran (four weeks)
- Unemployed veteran (six months)
- Qualified ex-felon
- Designated resident of a Rural Renewal County or Empowerment Zone (EZ)
- Vocational rehabilitation referral
- Food stamp recipient (Supplemental Nutrition Assistant Program or SNAP)
- Supplemental Security Income (SSI) recipient
- Long-term family assistance recipient
- Summer youth employee
Hiring and entity requirements
WOTC is applicable to temporary, seasonal, part-time, and full-time new hires who work at least 120 hours in their first 12 months of employment. An application must be submitted to the state workforce agency within 28 days of hire.
For-profit businesses of any size qualify for WOTC.
Federal Empowerment Zone Tax Credit
The Federal Empowerment Zone Tax Credit is available to employers who have employees who both live and work in the zones. The credit is equal to 20% of the wages paid up to $15,000 per calendar year, for a maximum annual per employee credit of $3,000.
Employees must live and work at least 90 days in the zone location to be eligible for the credit. The location of the worksite is controlling for purposes of the credit, rather than the company headquarters. Unlike WOTC, there is no precertification requirement to claim the credit. The statute is available for three years to amend returns to take advantage of this amazing opportunity!
Zone locations
Empowerment Zones are scattered across the continental United States, including both rural and urban populations. The zones are highly specific, typically they do not fill entire zip codes, but rather blocks of streets.
Some major cities that include Empowerment Zones are:
- Jacksonville, Florida
- Chicago
- Los Angeles
- New York City
- San Antonio
CLA’s WOTC and FEZ services
Taking advantage of tax credits can be a full-time job. CLA’s Business Incentives Consulting team works with employers to identify eligible employees, collect supporting information, submit the required tax forms, and compute the dollar amount of the credit. Our innovative, automated processes will help maximize efficiencies.
Additional Resources
Work Opportunity Tax Credit Services
Angel is a principal with CLA with more than 25 years of accounting experience advising owners of McDonald’s franchises around the country in all phases of the business, from start-ups including registered applicants and next generation candidates through transitioning first generation operators into retirement or exiting the business.
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