Tax Credits for Hiring the Disabled: What to Know

Did you know that the IRS offers tax incentives for businesses that hire people with disabilities? With these credits, the government encourages employers to hire individuals who may find it challenging to find a job. By hiring and identifying these qualified workers, both the employee and employer can reap benefits. Here is everything you need to know about tax credits for hiring the disabled. 

Need help to understand the current WOTC programs? Reach out to Parachor Consulting to speak to one of our professionals. 

Work Opportunity Tax Credits

Businesses can qualify for thousands of dollars in Work Opportunity Tax Credits. These incentives are used to reduce payroll costs or federal tax liabilities

Several groups of workers can qualify for these tax incentives, such as:

  • Recently separated veterans with a service-related disability
  • Recent SSI recipients
  • Participants in vocational rehabilitation

Remember that the U.S. government can always change the specifications of the programs from year to year. However, the government can also retroactively reinstate expired credits for previous years. When hiring new employees, make sure to gather all of the information about their qualifying statuses. In some cases, businesses can collect the work opportunity tax credits for these new hires. 

Related: Learn Your Tax Liability & How to Calculate It 

How Tax Credits for Hiring the Disabled Work

With WOTC credits, employers have incentives to hire the disabled. These tax credits range from $1,200 to $9,600 per hire. The tax credits assist disabled individuals in finding an easier path to employment. 

When a business hires a person with disabilities, the employer qualifies for WOTC tax incentives. Along with that, there is no limit on how many new disabled hires for a tax year. The credits apply to the specific amount of wages paid to an individual employee during that first year of employment. The wage amount varies by the target group. 

In many cases, that percentage will vary from 25 to 40%, depending on whether the employee is a full- or part-time hire. There are times when the target groups can earn a tax incentive for a second year. For example, for disabled veterans, tax credits are doubled, with the maximum credit of $9,600.

These credits can help encourage more businesses to hire individuals with disabilities, with deductions and tax credits. There are some other tax credits to include, such as:

Disabled Access Credit

The Disabled Access Credit offers a non-refundable credit for those small businesses. Any business that incurs expenses for providing access for those with a disability may qualify for these tax incentives. If an employer wants to qualify, the small business must have no more than 30 full-time employees and earn less than $1 million in revenue to take the credit. However, this is not a one-time credit. 

These employers can take the credit for every year that they incur an expenditure. The IRS Form 8826 (Disabled Access Credit) offers more information for those Disabled Access Credit eligible expenditures.

Barrier Removal Tax Deduction

Another type of workplace tax credit is known as the Architectural Barrier Removal Tax Deduction. These tax incentives allow businesses of any size to remove transportation and architectural barriers for the elderly and persons with disabilities

With this credit, a business can claim up to a deduction of $15,000 per year. These qualified expenses are for items that are usually deducted as capital expenses. A company can claim the deduction as a separate expense on their taxes

The Disabled Tax Credit and the Barrier Removal Tax Deduction can be claimed in the same tax year. Businesses must make sure that all of their expenses meet the minimal requirements for those incentives. To use both credits, the deduction must equal the difference between the amount of the credits and the total expenditures. 

Related: Employee Retention Credit (ERC): Complete Guide 

Obstacles Faced by Employers

While there are no limits to the amount of WOTC tax credits, businesses must screen new hires correctly. Employers could lose out on thousands of dollars of tax savings per year by failing to complete this process. 

Many businesses make two vital mistakes. They fail to screen job candidates during the hiring process to see if they meet the certification criteria. Along with that, the business does not meet the 28-day filing deadline.

During the hiring process, many potential workers might not want to admit that they have a disability. Since many disabled workers have been discriminated against in the workplace, they will not disclose a disability. Businesses can overcome these hesitations by focusing on inclusive and non-discriminatory policies. Employers can back up these statements that promote a supportive work environment and a willingness to make accommodations. 

By utilizing the WOTC program, businesses can maximize their tax credits. In some situations, employers should reach out to local agencies and organizations to find eligible workers. These agencies often will work together with businesses and disabled workers to meet those qualifications. With this practice, employers can take advantage of those tax credits for hiring individuals with disabilities. 

Another with these challenges, many businesses are not knowledgeable about the tax incentive process. In some cases, the employers are unaware that they could qualify for a tax credit for hiring someone with a disability. In addition to that, many businesses believe that the tax credit program is too difficult or complex to use. With that, they might not “waste” their time to capture those available credits. 

However, businesses can seamlessly integrate WOTC processing into the onboarding hiring stage. Parachor Consulting offers a web application that completely digitizes the WOTC process, which maximizes your tax credits and decreases the amount of time spent on WOTC compliance. Companies can easily claim all of these credits for hiring workers with disabilities by putting together an onboarding strategy. 

Related: Business Startup Costs & Tax Deductions 2021 [Guide] 

Take Advantage of WOTC Tax Credits for Hiring the Disabled

Work opportunity tax credits incentivize businesses to hire those who may have faced limited employment opportunities in the past. Are you looking for a team of professionals to help maximize your business tax credits? Get a free quote from Parachor Consulting!

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