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Don't overlook these employer tax credits

July 21, 2016

Crystal A. Germanese, CPA
Partner

Tony J. Switajewski, CPA
Partner

Companies may be qualified to receive certain tax credits that could be utilized against their federal and Connecticut income taxes. Because receiving the correct job certification to earn these credits is important, companies should understand the eligibility requirements.

Work Opportunity Credit:

Companies can qualify for a federal tax credit known as the work opportunity tax credit. Currently, the credit is available to companies that hire eligible employees who begin work for the company before January 1, 2020. The credit is available to companies who hire individuals from one or more of ten targeted groups. The targeted groups are: (1) qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program, (2) qualified veterans, (3) qualified ex-felons, (4) designated community residents, (5) vocational rehabilitation referrals, (6) qualified summer youth employees, (7) qualified members of families in the Supplemental Nutritional Assistance Program (SNAP), (8) qualified Supplemental Security Income recipients, (9) long-term family assistance recipients, and, (10) beginning in 2016, long-term unemployed individuals.

In order to obtain the credit, the company must obtain written certification from the designated local agency that the employee is a member of a targeted group by the day the employee begins to work for the employer or the employer must complete a “pre-screening notice” (Form 8850) by the day the individual is offered employment and must submit it to the designated local agency by the 28th day after the individual begins work. The pre-screening notice is done on IRS Form 8850 and is submitted to the designated local agency. The company must receive notice of certification before they can claim the credit.

The maximum credit available is generally $2,400 for the first-year wages per employee. However, a larger credit is available for long-term family assistance recipients and veterans, which ranges from a maximum of $4,800 to $9,600 per employee for first year wages. Additionally for long-term family assistance recipients, there is a credit available for second-year wages. The maximum credit for summer youth employees is $1,200 per employee.

There are additional requirements for a company to be eligible for this credit and rules that can prohibit the credit or reduce the credit. The credit is available to corporations and pass-through entities (such as S corporations, partnerships, and limited liability companies).

Connecticut Apprenticeship Training Tax Credit:

An often overlooked Connecticut tax incentive that is available to Connecticut manufacturers and contractors is the “apprenticeship training credit.” By hiring manufacturing and construction trade “apprentices” (i.e., persons in training), a business could earn lucrative Connecticut tax credits to reduce its Connecticut corporation business tax.  

In order for a business to earn this credit, it must employ a person under a qualified registered apprenticeship training program that is certified in accordance with regulations adopted by the Connecticut Department of Labor and is registered with the Connecticut State Apprenticeship Council.

For manufacturers, for income years beginning on or after January 1, 2015, the tax credit allowed per apprentice is the lesser of $6 per hour multiplied by the total number of hours completed by the apprentice during a predetermined training period; 50% of the total wages paid to the apprentice during the predetermined training period; or $7,500.

In order for a contractor to obtain the credit, it must employ a person under a qualified registered apprenticeship training program that is at least four years in duration. The tax credit earned per apprentice is equal to the lesser of $2 per hour multiplied by the total number of hours completed by the apprentice during the four-year training program; 50% of the total wages paid to the apprentice during the four-year training program; or $4,000.

Manufacturers that are treated as pass-through entities for tax purposes (such as S corporations, partnerships, and limited liability companies) can earn this credit. Manufacturers can sell, assign or transfer the credit to other entities to offset their corporate business tax liability, utility or petroleum gross earnings tax liability. However, construction trade pass-through entities may not earn the credit. For the construction industry, the credit can only be earned by C corporations and can be used to reduce the Connecticut corporation business tax liability.

Governor Dannel P. Malloy vetoed a 2016 bill that would have expanded the manufacturing apprenticeship tax credit to personal income taxpayers. The bill would have also allowed S corporation shareholders and owners of pass-through entities treated as partnerships for federal income tax purposes to claim the credit.

The Connecticut Department of Labor, Office of Apprenticeship Training, accepts applications into the program and subsequently computes the credit that is earned. The credit that is earned is reported to the business on a Credit Certification Letter.

Please contact Crystal or Tony if you have any questions about the applicability of the credits to your business.

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

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