Tax Breaks for Hiring Felons: How they Work

Redemption cannot occur solely through the efforts of the person in need of it.

The act of redemption requires other people and society to offer it to someone worthy of the chance to convert guilt and past wasted opportunities into good that benefits others.

Still, if you are a business, would you want a non-violent felon working for you? 

Should your business offer redemption and trust to non-violent felons at the expense of your business’ safety, morale, and worksite comfortability. Many companies fear for the safety of their operations, employees and are hesitant to offer a former criminal, even a non-violent one, a chance at redemption.

Over 650,000 felons are reintroduced into society and released from jail or prison annually. But less than 45% can find employment within eight months of release. The unemployment rate amongst most ex-felons is over 40% due to stigmatization. 

However, hiring a well-vetted and qualified ex-felon can qualify a business to receive thousands or tens of thousands in tax breaks.  Some ex-felons work hard to prove themselves and are less likely to quit after being hired abruptly. Hiring qualified ex-felons expands available talent pools.

The government encourages employers to hire ex-cons through specific tax incentives. Surprisingly, you are more likely to be criminally victimized in the workplace by trusted, long-time employees without a criminal record.

Workplace Crime

Workplace crime collectively costs American businesses over $50 billion annually. The average American company loses about $290,000 to non-violent workplace crimes like embezzlement and theft.

Almost 50% of trusted employees who have worked for a business for over five years are likely to commit workplace crime.

Many businesses can see future workplace crime or violence brewing in long-time employees. Over 40% of workplace crime is committed by employees with prior complaints, red flag notices, or negative work evaluations.

And most violent workplace crimes, like active workplace shootings, are committed by employees and people known to the business, not strangers.

The point is the future work value of any employee, ex-felon or non-felon, is predicated on thorough vetting practices.

Here are several tax credits you can receive for hiring qualified and non-violent ex-felons. And we will also discuss how to hire an ex-felon as an employee safely.

Do you need help finding every applicable tax credit for your business? Contact Parachor for a consultation and free quote. 

Related: Employee Retention Credit (ERC): Complete Guide

The Work Opportunity Tax Credit

The Work Opportunity Tax Credit is offered by the I.R.S. for businesses and employers who hire people classified by the Department of Labor as “target groups.” 

Target groups are socio-economically disadvantaged people who have more difficulty getting employed than people of other social classes.

Examples of people who can be classified as “target groups” include:

  • Food stamps and Social Security Supplemental Income recipients
  • Military veterans
  • Vocational rehab recipients
  • Temporary Assistance for Needy Family recipients
  • Formerly incarcerated individuals

The Worker Opportunity Tax Credit initiative had an estimated value of over $4.9 billion in 2020. The maximum tax credit for qualified ex-felon employees is $2,400 per employee.

After vetting and hiring an ex-felon, your business will complete paperwork and then submit it to your state-associated workforce agency. 

If the employee works 120 hours within the first year of employment, then you can legally claim a 25% tax credit on their wages. And if the employee works 400 hours within the first year of employment, then you can legally claim a 40% tax credit on their wages. 

Local Municipal Hiring Incentive Initiatives

Your local municipal government may have hiring incentives, like local tax credits or cash reimbursement, for businesses that hire ex-felons.

Refer to your municipal government website, or call or representative office, to inquire more or see if they offer the incentive. Like the Work Opportunity Tax Credit, qualified employees must work a predetermined number of hours within a year before employers can claim tax credits.

State-Derived Tax Credits

Many states offer state income tax credits or benefits for businesses that hire ex-felons.

However, state tax credits and benefits for such programs could have stricter or lenient application requirements than federal requirements. Each state government could have its own distinct application requirement.

For example, some states can offer a tax deduction instead of a tax credit. Or the employee in question may have to have been released within the last 12 months.

National Criminal Justice Initiatives Map

The National Criminal Justice Initiatives Map is a program that offers information to businesses seeking assistance and funding in helping ex-felons gain employment and reenter society.

Now let’s discuss how you can safely hire an ex-felon.

Free Bonding Services

The Department of Labor offers a free bond insurance protection program for businesses looking to hire ex-felons.

This bond insurance program protects businesses against any losses they may incur via dishonesty, fraud, or theft. The bond insurance program is free for the first six months. 

After that, qualified employees become bondable for life via the commercial bond insurance offered by the government’s Federal Bonding Program. And bond insurance rates can then range from $5,000 to $25,000.

Get Help

There are many organizations that offer support and consultation services for employers who hire ex-felons and ex-felon employees. 

Here is a list of resources for ex-felons in need of employment and the business that will hire them.

Don’t Make Hiring Decisions Alone

Hiring an ex-felon expands talent pools, offers redemption to the worthy and could help your business access beneficial tax credits. 

And keep in mind that businesses are more likely to be non-violently or violently victimized by long-term employees than strangers, new employees, or ex-felons.

A bakery in upstate New York made headlines years ago for only hiring “unemployable” people, like ex-felon, for generating annual revenues of $20 million.

Remember never to make such decisions in a vacuum – consult other workers, lawyers, consultants, or local government agencies.

Contact Parachor today to learn about every tax credit your business may be qualified to receive.

Related: Learn Your Tax Liability and How to Calculate It

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