United States

Tax credits can help Oklahoma businesses offset new employee costs


The Journal Record recently published an article addressing how school bond issues in Oklahoma have the potential to create 2,000 new construction and construction-related jobs. These additional job openings are significant enough that some companies are concerned there will not be enough applicants to support the demand. Fortunately, there are state and federal incentives programs that can help make hiring new workers more affordable.

Oklahoma offers several tax and financial incentives, such as the quality jobs program, that provide quarterly rebates on a percentage of wages to qualifying employers. The state also offers the investment/new jobs income tax credit that can provide a boost to expanding manufacturing operations.

The federal government also has several tax credits that can be of assistance to businesses needing to increase staffing. A popular federal employment tax incentive is the work opportunity tax credit (WOTC), a program that provides credits to employers hiring individuals in a variety of targeted groups. Qualifying employees include those receiving long-term family assistance, recipients of temporary assistance for needy families, U.S. military veterans, ex-felons, people living in designated economically depressed areas, recipients of the supplemental nutrition assistance program and other categories.

The WOTC program tends to be under-utilized. Many employers don't know about the credit, believe it is too difficult to administer, or don't realize they qualify.

According to the U.S. Department of Agriculture estimates, more than 270,000 Oklahoma households received supplemental nutrition assistance last November. The U.S. Census Bureau estimated there were roughly 1.4 million households in Oklahoma in 2013, which means that roughly 18.5 percent of the state's population would qualify for WOTC based on this test alone. Our experience has been that most companies will find that 20 percent or more of new employees qualify, with an average credit per employee of $2,000 ($9,600 maximum).

For an employer to receive the WOTC payment, an employee must be pre-certified by the Oklahoma Employment Security Commission in Oklahoma within 28 days of being hired. Many employers believe the process is intimidating because it requires getting employees to fill out a complicated IRS form and submit it in a timely fashion.

For companies with dedicated human resources staff and relatively few locations, this may be manageable. However, many are reluctant to help employees because many of the questions are personal in nature. (Think about how comfortable would you be asking someone if they were on welfare?) Obtaining the forms from employees based in multiple locations and keeping up with periodic changes can also be logistically challenging for internal staff.

Fortunately, some changes to the law have allowed for new solutions. Most notably, many states now allow the forms to be digitally signed. This allows employers to set up remote solutions (either internally or through third-party providers) that can help employees complete the necessary paperwork in a method that is both more private and less intimidating. These remote solutions tend to increase employee compliance and allow employers to identify qualifying employees more accurately.

Although the WOTC is technically a temporary provision and often authorized for only a year or two at a time, the credit has been retroactively reinstated every time it has expired. Many companies are reluctant to go through the certification process because of this uncertainty, however, Congress has retroactively reinstated WOTC several times and the risk of failing to reinstate the credit without warning is low.

For example, because the 2014 extended credit wasn't in effect until after the certification date had passed, the IRS gave employers until April 30, 2015, to certify 2014 new hires for the credit. Businesses that had not previously taken the credit or that did not have screening procedures in place during 2014 had an additional window to identify potential qualifying employees. These qualifying extensions are not always offered when the credit is reinstated, however, so advance planning is recommended.

If your company is interested in the WOTC, here are a few points to consider:

  1. Companies are limited on how much of the credit can be used in a year. If your income is fairly low or you qualify for other federal credits, you may not see much of the benefit until the carryforward is used in a later year.
  2. S corporations and partnerships with passive investors may find the benefit limited due to the passive credit limitation.
  3. Some companies simply do not hire enough people during the year to justify the resources expended.

There are many federal and state employment incentives that can help a growing business offset the cost of hiring new employees. The rules can be somewhat complicated, but now is a great time.


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