If you run a landscaping business, labor is most likely your largest individual cost category. However, there is an overlooked tax credit that can reduce labor costs and support the community called the Work Opportunity Tax Credit. We partnered with the CPAs at FuelCred to break down the Work Opportunity Tax Credit and show you how to claim it as a landscaping business owner.
The Work Opportunity Tax Credit or WOTC
The Work Opportunity Tax Credit is a commonly overlooked federal tax credit for landscapers. The credit can be claimed by employers who hire individuals from certain “target groups” who have historically faced significant hurdles to employment. Like fuel tax credits which hopefully you now know about, this is a dollar-for-dollar reduction of tax liability, but this one is based on a percentage of first-year wages paid to individuals in the “target group”.
Even better- thanks to the PATH Act, employers can now retroactively apply for the credit for employees who were hired after December 31, 2014.
How is the credit calculated?
The credit is calculated based on the percentage of qualified wages of employees. The credit is equal to:
- 25% of first year wages paid to qualified employees who worked between 120 to 400 hours.
- 40% of first year wages paid to qualified employees who worked in excess of 400 hours.
- 50% of second year wages paid to qualified employees certified as long-term family assistance recipients.
For example, as a landscaping business owner, you hired a qualified employee for the summer and they worked 20 hours a week for 4 months (16 weeks) or 320 hours. At $15/hour you would have paid them $4,800. With the WOTC credit you could get back $1,200! It’s that easy.
The credit is limited to the amount of business income tax liability or social security tax owed, but all businesses that are considering hiring new employees (or hired employees after 12/31/2014) should consider taking advantage of this cost-saving tax benefit.
What are the “target groups”?
To be eligible for the tax credit landscaping employers will have to hire from one or more of the following “target groups”:
- Qualified IV-A Recipient – The individual is a member of a household receiving Temporary Assistance for Needy Families. The assistance must be received during any 9-month period during the 18-month period during the employee’s hire date.
- Qualified Veteran – The individual must be a veteran who meets any of the following: Member of a household receiving SNAP (food stamps), unemployed for at least 4 weeks, a disabled veteran entitled to compensation for a service-connected disability hired within a year of their discharge, veteran entitled to compensation for a service-connected disability who is unemployed for a period totaling 6 months in a one year period ending on the hire date.
- Ex-Felon – Person hired within a year of being convicted of a felony or being released from prison from the felony.
- Designated Community Resident – Individual between the ages of 18 and 40 who resides in an Empowerment zone, an Enterprise community or a renewal community and continues to live there after employment. These zones are literally all over the country.
- Vocational Rehabilitation Referral – Individual with physical or mental illness who has been referred to the employer while receiving or upon completion of rehabilitative services pursuant to a state plan, an employment network plan or a VA rehabilitation program.
- Summer Youth Employee – An individual who is at least 16 but under 18 on the hire date or on May 1, whichever is later, and is employed between May 1 and September 15 and resides in an Empowerment Zone, enterprise community or renewal community.
- Supplemental Nutrition Assistance Program (SNAP) Recipient – Individual between the ages of 18 and 40 who is a member of family that received SNAP benefits for the previous 6 months or at least 3 of the previous 5 months.
- Supplemental Security Income (SSI) Recipient - Individual receiving SSI benefits within 60 days of the person’s hire date.
- Long Term Family Assistance Recipient – Individual who is a member of a family that receive long term family assistance.
- Qualified Long Term Unemployment Recipient – Individual who has been unemployed for 27 consecutive weeks at the time of hire and received unemployment compensation during some or all of the unemployed period.
How to Claim the Credit?
The short answer: You should consider consulting with your CPA to help you file for this tax credit.
The long answer: A landscaping employer wishing to claim the credit must first obtain certification that an individual is in fact a member of the targeted group. The employer must file Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit”, with their respective state workforce agency within 28 days after the eligible worker begins work. Landscaping employers may contact their individual state workforce agency regarding any specific question on Form 8850.
Once the required certification is secured, the credit can be claimed on Form 5884 (Work Opportunity Credit), Form 3800 (General Business Credit) and on your business’s related income tax return (i.e. forms 1040, 1041, 1120, etc.).
*TaskEasy does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.*