Employment Credit Update
Published February 12, 2019
The Work Opportunity Tax Credit (WOTC) is set to expire after 2019, but a new tax credit comes on the scene.
As 2019 kicks off, it is difficult to believe the Work Opportunity Credit (WOTC) is in its final year since being retroactively extended starting in 2015 as a part of the Protecting Americans from Tax Hikes Act. The WOTC has existed in some form since 1996, and has expired and been renewed more than ten times. Barring further government action, the program is set to expire at the end of 2019. Over the course of time, states have processed millions of certifications and saved taxpayers more than $1 billion in federal taxes under the program.
The WOTC is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced barriers to employment. Examples of targeted groups include veterans, ex-felons, summer youth employees, TANF and SNAP recipients and the qualified long-term unemployed. Employers must obtain certification that an individual is a member of the targeted group to claim the credit, and file the necessary paperwork with the state workforce agency within 28 days of the eligible worker’s initial employment. Therefore, it is important that the applicant completes the paperwork as part of the standard employee onboarding process. Maximum credit amounts can range from up to $1,200 per summer youth employee, to $9,600 for certain veterans. While uncertainty exists beyond 2019, it is important for employers to continue to consider taking advantage of this credit over the course of the current year.
While the WOTC is set to expire, last year’s tax reform implemented a new Family & Medical Leave (Section 45S) credit effective in 2018. To be considered for the tax credit as an eligible employee, the paid family and medical leave has to be a separate provision in the employer’s policies. A company’s current PTO policy will not likely qualify for the tax credit. Some highlights of this credit include:
- An eligible employer can claim a general business credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).
- To receive the credit, an employer must have a written policy that provides at least two weeks of leave and compensate workers at a minimum of 50 percent of their regular earnings.
- The credit will range from 12.5 to 25 percent of the cost of each hour of paid leave, depending on how much of a worker’s regular earnings the benefit replaces. The government will cover 12.5 percent of the benefit’s costs if workers receive half of their regular earnings, rising incrementally up to 25 percent if workers receive their entire regular earnings.
- Employers can only apply the credit toward wages paid to workers in 2018, who have been employed at the organization for at least a year and who were paid no more than $72,000 in 2017. (This wage ceiling will be adjusted for inflation going forward.)
- Both full-time and part-time workers, if employed at the organization for at least a year, must be offered paid leave for an employer to be able to claim the tax credit.
Employers must allow part-time employees to take a commensurate amount of paid leave, determined on a prorated basis.
There is no formal certification process associated with the Family & Medical Leave credit, however important parameters around the employer’s written leave policy to ensure eligibility are key. Similar to the mechanics of the WOTC, the current year wage expense of the taxpayer is reduced for the amount of credit.
For more information about how these changes may affect you and your construction business, please reach out to your MCM tax professional or contact Tax Partner Matt Neely, CPA, via email or phone (812.670.3434).