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 targeted groups find employment by offering employers tax credit. Businesses can receive tax credits ranging from $1,200 to $9,000 per employee.
The Target Groups:
- Qualified recipients of Temporary Assistance to Needy Families (TANF).
- 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.
- Ex-felons hired within one year after conviction or release from prison.
- 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.
- Vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network.
- Qualified summer youth ages 16 through 17 who reside in an Empowerment Zone, Enterprise Community, or Renewal Community.
- Qualified Food Stamp recipients ages 18 but not 40 on the hiring date.
- Qualified recipients of Supplemental Security Income (SSI).
- 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.
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.
