Among the many great business tax benefits Congress approved in December was an extension and expansion of the Work Opportunity Tax Credit.
This credit is extremely beneficial to many McDonald’s Owner/Operators, and with the credit’s extension through Dec. 31, 2019, it allows for long-term tax planning.
The Protecting Americans from Tax Hikes – or PATH – Act of 2015 also includes language that makes the WOTC retroactive for hires starting on Jan. 1, 2015. It also for the first time includes the long-term unemployed as a qualifying category.
Read about more tax benefits for McDonald's Owner/Operators included in the 2015 PATH Act.
Long-term unemployed recipients are defined as those who have been unemployed for at least 27 consecutive weeks and who received unemployment compensation. This new category is effective for employees who start work after Dec. 31, 2015.
The Work Opportunity Tax Credit – or WOTC – is a federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. Target groups include qualified veterans, long-term or short-term TANF recipients, food stamp recipients, employees living in empowerment zones and ex-felons, among others.
These tax credits are like free money from the federal government – how often do you hear words like that??
So what do you have to do to get these credits?
You have to hire qualifying employees at your restaurants, ask your new hires to fill out a form, and submit that form and any follow up documentation to your payroll/tax credit provider.
Your payroll/tax credit provider will only charge you based on a percentage of the credits that you actually receive. So, there’s no risk.
The only risk is if you don’t do anything, you will be overpaying taxes. In our experience, a very, very small percentage of employers actually walk away with $0 credits for their efforts.
The maximum credits range from $2,400 for the general target groups all the way to $10,000 for certain qualified veterans and Welfare-to-Work employees.
The most fruitful WOTC recipients are those that consistently include pre-screening as part of their hiring process and set the expectation for 100% compliance with their management team by including this as part of their manager bonus program.
We expect that the IRS will issue a notice providing “transition relief” for employers that did not file timely WOTC applications during the 12 month hiatus. So, with that said, here are some ways that you can prepare to take advantage of that potential opportunity:
- For those of you currently taking advantage of WOTC, we suggest you review your 2015 new hire files to be sure that you have completed and submitted Form 8850 to your WOTC provider for each and every new hire. If not, get them completed for any new hires that are still employed by you today.
- For those of you that have not participated in the past, request a list of all new hires for 2015, and get those that are still employed by you today to complete Form 8850. Then select a WOTC provider – we can provide you with names – and submit these forms to your WOTC provider.
How valuable are WOTC credits to you and your cash flow? Let’s walk through a quick example:
Assume you have tax credits of $50,000 (the calculation of credits is more complex, which is why a good credit provider is key). With estimated fees to a credit provider of 15% and a tax rate of nearly 40%, these credits amount to a net tax benefit of over $25,000, which is a tax savings of approximately 51% of the actual credits.
To be perfectly frank, if you haven’t implemented WOTC, you are leaving money on the table.
