The PATH article about the tax benefits from bonus depreciation deductions is a good lead-in to this discussion about the Protecting Americans from Tax Hikes (PATH) Act of 2015 (effectively, of 2016) as it introduces the “sexier” sibling to deductions in the tax incentives family, that is, tax credits.
PATH extends the Work Opportunity Tax Credit (WOTC) until 2019 and adds a new target group of employees, Qualified Long-Term Unemployment Recipient, which employers can now harvest for tax credits.
Tax credits are “sexier” than tax deductions that result from, say, bonus depreciation because credits reduce taxes owed directly on a dollar-for-dollar basis, whereas deductions reduce taxable income and therefore only indirectly impact taxes owed.
Employers can monetize WOTC from a number of employee categories for many years to come, including:
To qualify for this most recently added target group a person would need 1) to be certified by the designated local agency as being unemployed not less than 27 consecutive weeks, and 2) to have received unemployment compensation under State or Federal law. The credit is as much as 40% of the qualified employee’s first-year wages up to $6,000, i.e., up to a $2,400 credit. The tax credit applies to qualifying employees hired on or after 1/1/2016 and through 2019.
The other targeted employee groups represent $1200 – $9600 in tax credits per qualified employee.
The question is, “What would be the cost of capturing these credits against taxes owed?”, plus the sister question, “Would the benefit outweigh that cost?” With no fee to your business, we’ll review your situation and provide the information needed to answer those questions. Contact us for more information.