Building a Workforce with WOTC and FEZ

• May 8, 2023
• Carey M. Heyman, CPA

Cost segregation studies, Section 45L credits and Section 179(D) deductions are some of the most commonly discussed tax savings opportunities in real estate, but there are two often under-utilized tax credits that are available to real estate developers and owners/operators: the Work Opportunity Tax Credit and the Federal Empowerment Zone Tax Credit. Here are some key facts:

Work Opportunity Tax Credit (WOTC)

• WOTC 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.
• Eligible employee groups include:
  • 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
• WOTC applies to all W-2 employees of the organization, other than an owner or their relatives, regardless of whether they are full-time, part-time, temporary, or seasonal. Rehires are not eligible for the credit.
• An application must be submitted to the state workforce agency within 28 days of hire.

Federal Empowerment Zone (FEZ) Tax Credit

• The FEZ tax 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.
• The tax credit is available to employers who have employees who both live and work in an Empowerment Zone. These zones are scattered across the continental United States, including both rural and urban populations. The zones are highly specific, typically not filling entire zip codes, but rather blocks of streets. Some major cities that have Empowerment Zones are Chicago, Jacksonville, Los Angeles, New York City and San Antonio.
• Employees must live and work in the Empowerment Zone for at least 90 days in order to be eligible for the tax credit.
• The location of the worksite is controlling for purposes of the tax credit, rather than the location of the company headquarters. Unlike WOTC, there is no pre-certification requirement to claim the tax credit.
• The statute is available for three years, so there is an opportunity to amend previously filed tax returns.

We realize that evaluating potential tax credits can feel like a full-time job. CLA’s Business Incentives and Consulting team work with employers to identify eligible employees, collect supporting information, submit the required tax forms, and compute the dollar amount of the credit. Let’s connect and dig deeper to see what types of tax credits your organization might be able to capture.

Thanks to Karlee Hubble, Jennifer Rohen and Drew Murray for authoring this post.

Tags: Federal Empowerment Zone Tax Credit, FEZ, Tax Credit, WOTC, Federal and state taxation, including proposed regulations, Industry best practices, Industry trends/analysis, Year-end tax planning | Comments Off on Building a Workforce with WOTC and FEZ