As labor costs continue to rise for most hospitality owners, as well as employers in other industries, there is a tax credit available that can assist in mitigating some of the labor costs to the business owner. The Work Opportunity Tax Credit is available to business owners on qualified first- and/or second-year wages that are paid to employees from select targeted groups.
To claim the credit, the employer must ask for and be issued a certification from each employee from the state workforce agency. The certification proves that the employee is a member of a targeted group. Examples of targeted groups that an eligible employee can be member of include:
- Long-term family assistance recipient
- Qualified veteran
- Qualified ex-felon
- Designated community resident
- Vocational rehabilitation referral
Qualified wages to an employee from one of the targeted groups are ineligible if:
- The employee didn’t work for you for at least 120 hours
- The employee worked for you previously
- The employee is your dependent
- 50% or less of the wages the employees received from you were for working in your trade or business
The wages paid to an employee from one of the listed targeted groups during their first 12 months of employment will be used for purposes of calculating the tax credit. If an eligible employee works 120-400 hours in year one, the tax credit to the employer equals 25% of the eligible wages paid out. The tax credit to the employer increases to 40% of the eligible wages if the employee works at least 400 hours.
The second-year wages of employees are certified as long-term family assistance recipients are also eligible for the tax credit. The tax credit to the employer in this circumstance would equal 50% of the eligible wages.
Please be advised that any employers that claim the Work Opportunity Tax Credit must reduce their wage deduction in proportion.
The Work Opportunity Tax Credit has proven to be valuable to business owners. It’s particularly an opportunity and incentive for restaurant, hotel, food distributor and retail owners to hire employees from one of the targeted groups referenced above. Business owners interested in pursuing this tax credit should consult with a tax advisor on whether they meet the criteria for qualifying for the tax credit.
Our tax specialists are available for consultation on this issue and other business management topics for restaurants, hotels, food distributors, and retail owners. Please contact Aaron Boker or one our hospitality tax advisors at 301.231.6200 for more information.