Hire Disadvantaged Employees & Save on Taxes

The work opportunity credit--recently extended through 2003 bythe Job Creation and Worker Assistance Act of 2003--lets employersclaim a credit equal to 40 percent of the first $6,000 of qualifiedwages, or a maximum of $2,400, during an employee's first yearof employment. This applies to employees who work at least 400hours during the year and belong to certain disadvantaged groups,such as qualified summer youth employees, families receiving foodstamps, qualified veterans and persons receiving certainSupplemental Security Income benefits. (For a complete list, go towww.irs.gov andtype "work opportunity credit" in the search bar.) If theemployee works less than 400 hours, but at least 120 hours, thecredit is reduced to 25 percent of qualified wages. (No credit isavailable for employees working less than 120 hours in theyear.)

Another credit also extended through the same act is thewelfare-to-work credit, which is available to employers who hirequalified long-term family assistance recipients who begin work onor before December 31, 2003. It is more generous than the workopportunity credit and, as a result, it's usually morebeneficial to claim. The credit is equal to 35 percent of up to$10,000 of wages in the first year and up to 50 percent of up to$10,000 in the second year of employment, for a two-year maximumcredit of $8,500 per employee.

To claim the work opportunity credit on your tax return, attachIRS form 5884. For the welfare-to-work credit, attach IRS form8861. But remember, if you claim the welfare-to-work credit forsomeone you hire, you can't claim the work opportunity creditfor the same employee. For both credits, you are required to fileforms with your state coordinator within 21 days of theemployee's first day of work. Don't be put off by theamount of paperwork you have to do--your accountant can help youwith that.

Source: "HirePurpose"