Many small to midsized restaurant operators are overlooking a key tax incentive from the federal government: the Work Opportunity Tax Credit (WOTC).
WOTC reduces the federal tax liability of for-profit employers who hire staff from these 11 targeted groups:
• qualified Temporary Assistance to Needy Families recipients
• qualified veterans/disabled veterans
• unemployed veterans
• qualified ex-felons
• qualified residents of an Empowerment Zone, Renewal Community or Rural Renewal County
• qualified Vocational Rehabilitation Agency referrals
• Disconnected Youth
• qualified Summer Youth
• qualified Food Stamp recipients
• qualified Supplemental Security Income Recipients
• qualified long-term Family Assistance recipients
Available credits range from $1,200 to $9,000. Some of the possible credits include:
• $1,200 for each new Summer Youth hired
• $2,400 for each new adult hired
• $4,800 for each new disabled veteran hired
• $9,000 for each new long-term Family Assistance recipient hired over a two-year period
All new employees must work a minimum of 120 hours and individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit.
Ironically, one of the banes of the foodservice industry—high employee turnover—is actually a boon in this case, since an owner can take advantage of the incentives more frequently.
How can you best capitalize on this incentive? Often it makes sense to hire a consulting firm that specializes in that area. CPAs may understand the tax ramifications but may not be able to handle the paperwork required for each employee to qualify for the incentive. In addition, some firms offer a call-in screening process to make sure all the paperwork is done properly when the employee is first hired. They can provide a turnkey service for you, starting with the initial screening process all the way to providing your CPA with the forms to use when filing your tax returns.
--By Karim Solanji and Mark Lauber of Paradigm Partners. Paradigm is a national tax consulting firm specializing in niche services such as the R&D Tax Credit, IC-DIS, WOTC and more. Call 281-558-7100 or visit www.paradigmlp.com.