While the two biggest benefits for McDonald’s Owner/Operators in the second federal stimulus were changes to PPP loans and the expansion of Employee Retention Tax Credit, there are some other benefits franchisees should consider, as well.
Both the Work Opportunity Tax Credit and Empowerment Zones have been around for some time but the second stimulus – formally known as 2021 Consolidated Appropriations Act – extends both of them for five years, providing a long window for tax planning opportunities.
Here are the details you’ll need to consider for these opportunities:
Work Opportunity Tax Credit: 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. You can see a full list here.
The credits range from a maximum of $2,400 per year for general target groups up to a maximum of $9,600 per year for certain qualified veterans.
From our experience, the franchisees that are able to maximize their WOTC benefits 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.
How valuable are WOTC credits to you and your cash flow? Let’s walk through a quick example:
Assume you are able to obtain WOTC credits of $50,000 for the year (the calculation of credits is complex, which is why a good credit provider is key). The credit provider charges a contingency fee of 12% or $6,000 for the WOTC credits obtained. Assuming a 35% tax rate, the net after tax benefits are $28,600.
If you haven’t implemented WOTC, you are leaving money on the table. With the credit available through 2025, you need to ensure you are maximizing this benefit.
Empowerment Zone: The second federal stimulus also granted a five-year extension to the federal Empowerment Zones. McDonald’s franchisees can find out if they’re in an Empowerment Zone here.
The Empowerment Zone credit is similar to WOTC. To qualify, the employee must work AND live in the designated Empowerment Zone. The wage credit is equal to 20% of the first $15,000 of wages, up to a maximum $3,000 credit per worker. An employer can obtain both WOTC credits and Empowerment Zone credits, but not both on the same employee.
WOTC and Empowerment Zone credits offer great benefits to McDonald’s Owner/Operators who qualify. However, these benefits need to be analyzed in conjunction with Employee Retention Tax credits as you can only take one of these credits per employee, if eligible. Additionally, any wages paid with PPP Loan proceeds are not eligible for ERTC, WOTC or EZ credits. Please contact us to see how you might benefit.
Did you miss our updates on PPP and ERTC? Get all the details here:
Many More Businesses Now Eligible for COVID Employee Retention Tax Credits
New Federal Stimulus Deal Includes New PPP, Other Business Benefits
