Several tax breaks that are available in 2019 are set to expire soon. Businesses face a use-it-or-lose-it opportunity, suggesting that you act now if the tax breaks make sense for your company.
Work opportunity tax credit
If you’re considering hiring a new employee, there’s a federal tax incentive to hire a person who falls within a targeted group (defined by the tax law). This incentive is the work opportunity tax credit and it is scheduled to apply only to an eligible employee who begins work before January 1, 2020.
The targeted groups are:
- Member of a family receiving Temporary Assistance for Needy Families (TANF)
- Qualified veteran (there are 5 subcategories)
- Qualified ex-felon
- Designed community resident
- Vocational rehabilitation referral
- Summer youth employee
- Recipient of SNAP benefits (food stamps)
- SSI recipient
- Long-term family assistance recipient
- Long-term unemployed
There are 10 targeted groups and the amount of the credit varies with the group, and in some cases, the term of employment. The basic credit is 40% of first year wages up to $6,000, for a top credit of $2,400, if the employee works at least 400 hours. But the credit for a veteran with service-connected disability who is employed for at least 6 months is 40% of wages up to $24,000, for a top credit of $9,600.
In order to prove that an employee falls within a targeted group, an employer must submit IRS Form 8850 to the state workforce agency within 28 days of the first day of employment. (Most but not all states permit the form to be filed electronically.) The employee must sign the form. If the employer fails to timely submit the form, no credit can be claimed even if the employee is within a targeted group.
Note: Some states have their own work opportunity programs, so check with the state’s revenue, finance, or tax department.
Paid family and medical leave tax credit
While employers with 50 or more employees are required by the Family and Medical Leave Act to provide up to 12 weeks of unpaid time off for certain family matters, there’s no federal law that employees must receive payments during this period of time off. But employers that choose to provide paid leave and are not required by state or local law to do so may qualify for a federal tax credit. There must be a written policy in place providing at least two weeks of paid family and medical leave to all qualifying employees and the amount paid is not less than 50% of the normal wages. Qualifying employees in 2019 are those who earned no more than $72,000 in 2018.
The amount of the credit, which is figured on IRS Form 8994, is a minimum of 12.5% of the paid leave amount. It is increased to a maximum of 25% of such paid leave amount.
The credit, which was introduced in 2018, is set to expire at the end of 2019 unless Congress extends it.
Tax credit for certain plug-in electric powered vehicles
To encourage clean-fuel vehicles, there’s a federal tax credit for electric powered 4-wheel vehicles of up to $7,500. However, once the manufacturer has sold 200,000 such vehicles, the credit phases out. Two manufacturers—Tesla and GM—have surpassed this sales threshold, so purchasing one of these vehicles now produces a reduced credit as follows:
| Vehicle placed in service in: | Tesla vehicles | GM vehicles |
|---|---|---|
| Fourth quarter of 2019 | $1,875 | $1,875 |
| First quarter of 2020 | 0 | $1,875 |
| Second quarter of 2020 | 0 | 0 |
The credit continues to apply to plug-in electric vehicles from other manufacturers until they cross the sales threshold as well. The credit is figured on IRS Form 8936. If the vehicle is purchased for business, the tax credit is part of the general business credit and subject to the applicable limitation.
Final thought
Businesses that can benefit from these tax credits should consider taking advantage of them while they are available. Who knows what the future may bring?
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