Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC): What to Know

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Being a business owner often means you’re in a position to give back to your community. One of the best ways to help out is to hire disadvantaged people in need of a steady job. By doing so, your good deed can be rewarded with a tax credit.

The Work Opportunity Tax Credit (WOTC) is available to businesses that employ certain people who often have difficulties finding a job. In order to take advantage of the WOTC, your business must hire people from specific groups and meet other requirements. In this blog post, we’ll provide an overview of what to know about this tax credit.

Work Opportunity Tax Credit (WOTC) target groups

To qualify for a WOTC, you must hire employees from any of the “target groups” listed below:

  • Veterans

  • Recipients of Temporary Assistance for Needy Families (TANF)

  • Recipients of Supplemental Nutrition Assistance Program (SNAP) – Commonly referred to as food stamps

  • Designated Community Residents (DCR) – Residents of communities that qualify as Rural Renewal Counties (RRCs) or Empowerment Zones (EZs)

  • Vocational Rehabilitation (VR) referred individuals

  • Ex-felons

  • Supplemental Security Income (SSI) recipients

  • Summer youth employees

Within each one of these groups, there are requirements the employee and/or business must meet. For example, a person qualifies as a veteran if they served on active duty for more than 180 days or were discharged due to a service-related disability.

Additionally, a person is considered a “summer youth employee” for WOTC purposes if they’re 16 or 17 years old, work between May 1 and September 15, and reside in an recognized Empowerment Zone. That means simply giving any teenager a summer job isn’t enough to qualify for the WOTC.

The Department of Labor website outlines the requirements that must be met for each target group.

How to calculate and claim a Work Opportunity Tax Credit (WOTC)

A business can earn a tax credit between $1,200 and $9,600 for each employee that meets the target group requirements outlined above. The exact amount depends on the employee’s specific target group and the hours they worked during the year.

It’s also important to note the employee must work at least 120 hours in their first year of employment. And the more hours they work, the higher the tax credit will be.

Once you understand and meet the requirements, you can claim your credit by completing the following forms:

  • IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit)

  • ETA Form 9061 (Individual Characteristics Form) or ETA Form 9062 (Conditional Certification Work Opportunity Tax Credit)

All forms must be completed by both you and the employee when they’re hired. You must submit these forms to the IRS and your state’s workforce agency within 28 days of the employee’s start date.

Work with a professional

The information outlined in this blog post in only an introduction to the WOTC. We recommend consulting with a tax professional so you can ensure you meet all the requirements and maximize the credit you receive.

BookKeeping Express is the leader in accounting and bookkeeping services for restaurants, home service contractors, service professionals, and health and wellness businesses. Visit our features page to learn how we can serve your business.

Common Expenses for Restaurants

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Properly recording and categorizing expenses is an important part of bookkeeping. It gives the business owner insight into how their money is being spent and helps them maintain a healthy cashflow. And when tax time comes, they can maximize their deductions because the necessary records have been kept throughout the year.  

Every industry operates in its own unique way so expenses vary across different types of businesses. In this blog post, we’ll explore the expenses restaurant businesses commonly incur.

Employee benefits

Paid sick leave, vacation pay, and health insurance benefits provided to employees are tax deductible for the restaurant business.

Vehicle mileage

If you or your restaurant’s employees drive to make deliveries, provide catering, or pick up supplies, these costs can be deducted from your taxes. The key is to accurately track the miles driven for business purposes. You can learn more about the mileage deduction in this blog post.

Accelerated depreciation expenses

In the past, certain capital investments could only be depreciated over a number of years. With Section 179, some equipment can be depreciated as a lump sum in the year of the purchase. The break is meant to make it more affordable for small businesses to buy up to $500,000 worth of qualifying equipment — including computers, vehicles, furniture, and kitchen appliances.

Employee meals

Many restaurants allow their employees to order a free meal during their shift or provide a “family meal” for everyone to share together. These meals are deductible at cost for the restaurant and not taxable to the employee.

Donated food  

Many restaurants are unaware there is tax benefit for donating unused food. You can claim an enhanced deduction if the food is donated to an organization that qualifies under section 501 and you meet other requirements set by the IRS.

Holiday parties

It’s common for restaurants to throw a party for their staff during the summer or holiday season. The cost of a holiday party is fully deductible for the restaurant, as long as it’s hosted primarily for the employees. That means you shouldn’t invite your friends or favorite customers. However, your employees are allowed to bring their spouses or significant others.

You should also make sure your party isn’t too lavish. An excessive holiday party deduction can cause the IRS to take a closer look at your company’s entire tax return.

Employee gifts

In addition to hosting a party, many restaurants give their employees gifts during the holidays. Gifts are deductible for the business, provided they don’t exceed $25 per employee per year.

In most cases, a gift is not taxable income for an employee. They’re considered a de minimis fringe benefit, which is Latin for “of minimal value.” The IRS notes on their website that gifts are de minimis as long as they cost less than $100 for each employee. So adhering to the $25 limit will keep both you and your employees in good shape from a tax perspective.

However, one exception is gift cards. Because they have a cash value, gift cards are taxable income for employees, regardless of the amount.

The Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) encourages businesses to employ people who traditionally face challenges finding work. You can receive a tax credit for hiring veterans, people with a criminal record, food stamp recipients, residents of Empowerment Zones, and people referred by vocational rehabilitation services.   

Bookkeeping Express (BKE) specializes in accounting and bookkeeping for quick service restaurants, full service restaurants, coffee shops, and specialty food providers. Visit our restaurants page to learn how BKE can assist your business.