by John Langreck, founding member and principal, Fox Consulting Group LLC
Developing a productive workforce has become increasingly challenging since the start of the pandemic. Fortunately, there are federal and California tax incentives that assist businesses with hiring, retaining and training employees.
Creating a productive workforce is a time-intensive and costly investment. The incentives examined below mitigate that cost and are available across industries. Both taxpayers and practitioners are advised to consider these in their planning and implementation as they ultimately help the bottom line. After all, it’s not what you make, it’s what you keep.
Tax Incentives for Hiring
The Work Opportunity Tax Credit (WOTC) is a federal income tax credit available to employers who hire and retain individuals from the following targeted groups:
- Veterans (including those with a disability);
- Temporary Assistance for Needy Families (TANF) recipients;
- Supplemental Nutrition Assistance Program (SNAP) recipients;
- Vocational rehabilitation referrals;
- Ex-felons;
- Supplemental Security Income (SSI) recipients; and
- Long-term unemployment recipients.
The WOTC ranges from $1,200 to $9,600 per employee depending on the category and can be claimed by both for-profit businesses and tax-exempt organizations. The Consolidated Appropriations Act, 2021 authorized extension of the WOTC until December 31, 2025.
The New Employment Credit (NEC) is a California income tax credit that can be claimed for full-time new hires in the following categories:
- Unemployed for the 6 months preceding employment;
- Veterans (separated within the last 12 months);
- Earned Income Tax Credit (EITC) recipients;
- CalWORKS (welfare) recipients; and
- Ex-felons.
The program requires that the employer be located in a Designated Geographic Area (DGA) census tract marked by low income and high unemployment. The NEC is claimed during the first 60 months of employment and can be as much as $112,840 per employee.
The California Competes Tax Credit (CCTC) is an income tax credit available to businesses expanding in or relocating to California with an emphasis on new jobs that would not otherwise have been created. It is negotiated by the Governor’s Office of Business and Economic Development (GO-Biz) and approved by the CCTC Committee. Businesses enter into a five-year agreement with GO-Biz and earn credits by meeting hiring and investment milestones. The fiscal year 2022-2023 budget allocated $304,727,233 that’s awarded during three application rounds.
Governor Gavin Newsom introduced the California Competes Grant Program (CCGP) with the 2021-2022 budget. The CCGP offers business taxpayers $120,000,000 each fiscal year. Unlike the CCTC, this is a cash grant that incentivizes businesses to create high-quality jobs in the state. The CCGP targets businesses with little or no tax liability (e.g., startups and those with significant research and development tax credits and net operating losses).
Tax Incentives for Retention
The Employee Retention Credit (ERC) was introduced in the Coronavirus Aid, Relief, and Economic Security Act(CARES) to encourage employers to retain employees during the pandemic. It is a refundable payroll tax credit that eligible businesses may claim by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Eligibility is established by either a reduction of gross receipts comparing 2020 and 2021 with 2019 on a quarterly basis or a full or partial shutdown of operations due to government order related to COVID-19, including a modification that limits the business’ ability to provide goods and services. The ERC can be as much as $26,000 per employee, and qualified wages include employer-provided health insurance for employees. Unlike the Paycheck Protection Program (PPP), businesses with 500 or more employees may claim ERC. The statute of limitations to claim ERC will fully lapse on April 15, 2025.
The Families First Coronavirus Response Act (FFCRA), as amended by the Tax Relief Act of 2020 and the American Rescue Plan Act, (ARPA) offers businesses with fewer than 500 employees refundable payroll tax credits for employees who took sick or family leave related to COVID-19 during the period of April 1, 2020, through September 30, 2021. The Paid Sick Leave Refundable Credit (PSLRC) can be up to $14,220 per employee and the Paid Family Leave Refundable Credit (PFLRC) can be up to $22,000.
Tax Incentive for Training
The Employment Training Panel (ETP) is a state agency that funds the costs of vocational training through the Employment Training Tax (ETT). The ETT is paid by California employers and is a performance-based program providing funds for full-time employees who successfully complete training and are retained for at least 90 days. ETP reimburses both in-house and third-party training up to 200 hours at a rate up to $23 per hour. Contract terms are 24 months and awards can be up to $600,000.
John Langreck is the founding member of Fox Consulting Group LLC (www.foxconsultinggroupllc.com) in Sacramento, California and can be reached at john.langreck@foxconsultinggroupllc.com or 916-996-1428.
