Staffing firms might qualify for federal or state tax credits. Understanding which tax credits benefit staffing firms more helps determine which ones to apply for.
Eligibility requirements differ for federal and state tax credits. Therefore, staffing firms that qualify for these credits should begin the application process today.
Federal or State Hiring Credits
Hiring and supporting statistically disadvantaged employees from diverse backgrounds could increase a staffing firm’s cash flow and reduce federal income tax liability. The federal government and certain states let companies claim tax credits for specific eligible individuals and for conducting business in specially designated areas.
Staffing firms are encouraged to gain insight from experienced advisors to leverage federal and state hiring credits. Working with a professional to complete the time-consuming process can return money to the organization.
Federal Hiring Credits
A staffing firm and its employees must meet specific requirements to qualify for federal or state hiring credits and savings opportunities:
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a federal credit distributed at the state level. This credit encourages businesses to hire individuals receiving government assistance to help them become more self-sufficient.
Savings range
The maximum available credits for the WOTC range from $2,400 to $9,600 per new employee, depending on how the employee qualifies. The credit value is determined by:
- The group under which the employee qualifies
- Number of hours worked
- Wages earned during the employment period
Eligible employees
Eligible employee groups include:
- Members of families that receive Supplemental Nutrition Assistance Program (SNAP) benefits, long-term Temporary Assistance to Needy Families (TANF), or Aid to Families with Dependent Children (AFDC)
- Qualified unemployed or disabled veterans
- Qualified ex-felons or pardoned, paroled, or work-release individuals
- Individuals who have completed or are completing vocational rehabilitation programs
- Qualified summer youth 16 or 17 years old, employed only during the period between May 1 to September 15, who are living in an empowerment zone
- Individuals receiving Supplemental Security Income (SSI)
- Residents of designated communities, including individuals living within a rural renewal county
- Individuals who were unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law during this period
The credits must be applied for within 28 days of a new employee’s start date.
State Hiring Credits
Many states offer WOTC-equivalent opportunities. The amount of credit and the type of tax offset varies by state. The example below is for Texas.
Texas
Eligible staffing firms can claim a state sales and use tax refund of up to $2,500 per employee with additional benefits for companies making large capital investments over 5 years by participating in the Texas Enterprise Zone Program.
Texas Enterprise Zone Program
Staffing firms with operations in Texas that build, expand, modernize, or renovate facilities with existing or new jobs could have significant opportunities to refund state sales and use tax expenses through the Texas Enterprise Zone Program (EZP):
- Texas’s EZP does not require businesses to be located within an enterprise zone to be eligible.
- Workers are not required to be onsite to meet requirements.
- Any Texas-based facility meeting the program’s job count and investment requirements could be eligible.
Applying to Texas’s highly competitive EZP is a complex, deadline-driven process. Delegating this work to a team of experienced professionals can streamline the application process, prevent errors that delay refunds, and support successful results.
Offset business expenses
Leveraging this refund opportunity lets Texas-based operations recover capital investment and hiring costs associated with expansion, growth, modernization, and ongoing maintenance:
- Participation in the Texas EZP can result in a refund of up to $2,500 per employee, subject to limitations.
- Additional benefits are possible for companies making large capital investments over 5 years.
- Nomination from the local jurisdiction is required.
- There is a limited number of designations available in each jurisdiction.
Would You Like to Apply for Federal or State Tax Credits?
Partner with MJA & Associates to help your staffing firm apply for federal or state tax credits. Reach out to start the process today.
