IRS Highlights Tax Benefits Available for Small Businesses
The Internal Revenue Service (IRS) has provided some guidance for small businesses. The agency recently posted a news release to remind small business owners of a tax credit that is available for those who hire long-term unemployment recipients.
What is this tax credit? The Work Opportunity Tax Credit (WOTC) is available for qualified first and second-year wages paid to eligible employees.
The WOTC extends beyond those who were long-term unemployment recipients to also include other job applicants that face barriers to employment. This includes unemployed veterans, ex-felons, food stamp recipients, and long-term family assistance recipients.
How does a business owner apply for this credit? The credit is available on Form 5884. The business owner should claim the WOTC on the eligible business’ income tax return. The employer must also ask for certification for the employee from the state workforce agency to establish that the employee is part of one of the eligible groups noted above.
The IRS also requires the employee to work for at least 120 hours and not have a previous history of employment with your business. The IRS also notes the worker is disqualified as an eligible party if related to the business owner.
The IRS determines the available credit based on the wages paid to the worker.
What if a tax credit or tax filing leads to an investigation? In some cases, the IRS may investigate a business’s tax returns. Businesses that are the subject of an investigation have options. It is often wise to seek legal counsel to discuss these options. An attorney can provide guidance through the investigation and help the business avoid additional tax difficulties.
