Frequently Asked Questions

What is a tax credit?

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive that the government provides to private-sector businesses for hiring individuals from nine target groups that have historically faced significant barriers to employment. This government program offers participating companies up to $9600 per new hire that qualifies for tax credits.

Under IRS regulations through FICA, employers in the food and beverage industry may be eligible for a credit for social security and Medicare taxes paid on their employees' tip income.

The federal government has designated certain economically depressed areas as tax advantage areas through the geographic incentive credits. If your business is located in one of these areas and you employ individuals living in the same area, you can earn credit against your federal tax liability.

The federal government has designated certain economically depressed areas as tax advantage areas through the Indian credits. If your business is located in one of these areas and you employ individuals living in the same area, you can earn credit against your federal tax liability.

What are the tax credits TaxBreak has researched, processed, tracked, received apporpriate state certification, calculated and filed for my company?

Work Opportunity Tax Credit
Welfare-to-Work Credit
Empowerment Zone Credit
Indian Employer Credit
FICA Tip Tax Credit

What do I do to take the tax credits?

TaxBreak will provide the appropriate tax reports, depending on the type of credit earned, for the appropriate tax year. In some instances for prior years where the tax returns have already been filed, the client will need will amend the return. For open tax years or current year client will recalculate the tax liability by reducing the wage deduction by the amount of credit; include the information provided by TaxBreak on their return; and file the return.

They can be carried back to the previous year; applied in the tax year the credit was generated; or carried forward 20 years.

Will tax credit processing cause businesses to be audited more frequently?

We minimize any potential exposure and still allow your firm to take full advantage of tax credits. We have never incurred a credit loss as a result of an audit nor have we experienced more frequent auditing of our client accounts. Once credits are certified, the government cannot un-certify them retroactively. The government established these tax credits in an effort to provide incentives to businesses to employ from disadvantaged groups and take associated credits. The largest employers in the U.S. take advantage of tax credits. These household names would not take the risk of exposing themselves.

How are the credits distributed?

If the business entity is a sole proprietorship, S-Corp, LLC, LLP or Partnership, the credit passes to the owner, shareholder, member or partner in the same manner as losses are allocated. In a C-Corp the credits are used by the corporation. They offset federal income taxes and can be carried back to the prior year or carried forward 20 years.

Do businesses forfeit deductions by taking credits?

Yes. They would lose the deduction for wages in the amount of the credit, but are trading out a credit for a deduction which is much larger. For example; An Employee makes $4,000 which generates a $1,600 credit, Employer takes a $2,400 wage deduction along with the $1,600 credit.

The credit is much more valuable than the deduction. Our fee is also deductible.

What if the business isn’t paying taxes or only paying Alternative Minimum Tax (AMT) or Net Operating Loss (NOL)?

No problem. The WOTC will offset the AMT and the EZ and RC credits will offset 25% of the AMT. If you are in a Net Operating Loss (NOL) and not paying taxes, the credit may be carried forward 20 years.

Do credits apply to current employees?

Most federal credits are for new hires only, except for some geographic based incentives that may be retroactive. We would identify those instances on a case-by-case basis.

Some credits do such as Empowerment Zone, Indian Employer Tax Credit, FICA Tip Tax Credit, but WOTC is only for new hires and must be applied for within 28 days of start date of work. Rehires are not eligible for WOTC.

Should I be concerned about discrimination as it relates to the questions asked?

These programs were established by the federal and state agencies for companies to take full advantage of qualified candidates and to encourage them to hire from the targeted groups. The government was careful to design a program in a manner that does not discriminate based on any EEO classifications. That’s why so many companies today are realizing millions of dollars in tax credits. The forms are also designed as a pre-screen and, therefore, can be used in assessing which job applicant to hire. Answering the questions is strictly voluntary.

My CPA does this.

If you are not completing an 8850 with each new hire, you are not processing for WOTC tax credits. This is more of a HR function, not an accounting function. It is hard for CPA's to have new hires complete IRS form 8850 within 28 days of their start date.

We are doing credits in-house.

Many of our clients used to do this in-house until they realized they could more cost effectively outsource the services. They earn a greater return while being able to redeploy their staff and improve the amount of credits earned.

We did this before and didn’t get much tax savings/credits.

This is not unusual, how long ago was that? There have been significant changes in the tax law recently and the WOTC categories were expanded and as a result more individuals qualify.

This seems like a lot of paperwork for our HR Department.

By using our technology to pre-screen and process, there will be a minimal amount of work as they will only send paperwork in on pre-qualified new hires. We also take the burden of processing, tracking regulations, identifying and calculating the credits. This is why TaxBreak was formed.

My PEO (or employee leasing company) is taking these credits.

According to the IRS, the “common law employer” is entitled to the tax credit. If the client does the hiring, firing, determines the pay and manages the day to day duties of the employee, they are the common law employer. Note: We do not get involved in this type of decision making by the client. We simply arm them with information they can discuss with their CPA – there is documentation that can be sent to the client for additional information.

All new hires fill out the TCQ and IRS form 8850 and those forms are sent to me to mail in to TaxBreak. They already have signed and reviewed their documents, can I enter the information online and sign on behalf of the employee?

NO … the IRS rules states that the employee must personally sign electronically.

Why do we have to submit Driver's Licenses and W4's (or any form of acceptable proof) when our old providers never required it?

The state WOTC offices will not certify without the required proof for any target group that has an age or employee residence requirement, and most groups have one or both. TaxBreak has been advised by the state WOTC offices that the reason we have a higher certification rate than our competitors is due to our applications being “complete” with this information.

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