Tax Credits Blog Post
I wrote this blog post for my client ERC Benefits as part of a strategy to establish them as go-to experts in the field of tax credit services. While similar articles exist on the web, I focused on making this version as informative and accessible as possible. The tax credits I chose to highlight are the easiest and most profitable to apply for, and I included the form numbers business owners would need to claim them.
5 Big Tax Credits for Small Businesses
If you’ve spent time on the ERC Benefits website, then you probably know all about the Employee Retention Credit and how it can net your business a substantial refund from the IRS. But the ERC isn’t the only tax credit you can file for. There are several others that many small business owners fail to claim on their taxes–and they can add up to thousands in savings. If you haven’t talked to your CPA about the five tax credits listed below, this is the year to do it!
Recovery Startup Business Credit
If you go searching for the RSBC online, you probably won’t find much information about it. That’s because it’s considered part of the Employee Retention Credit (ERC). This special provision was added onto the ERC when lawmakers realized most businesses founded early in the COVID-19 pandemic wouldn’t meet the operational requirements to qualify for the original ERC.
To claim the RSBC, your startup must have opened on or after February 15, 2020, have at least two non-family W2 employees, and averaged less than $1 million in annual revenue. In exchange, you can receive up to $50,000 per Q3 and Q4 of 2021 in a payroll refund from the IRS, for a total credit of $100,000.
Sadly, the RSBC won’t be around forever. The deadline to retroactively file for this valuable credit is April 15, 2025.
Need help qualifying or filing for this credit? Visit our RSBC website or contact us.
Form needed to file: 941-X
Work Opportunity Credit
Love employing military veterans, ex-felons, or people with disabilities at your small business? Then this credit is for you!
The Work Opportunity Credit rewards business owners for employing groups of people who have historically struggled to obtain jobs. And the list doesn’t end with the three listed above. You can also qualify if you’ve employed:
- A long-term family assistance recipient
- A Temporary Assistance for Needy Families (TANF) recipient
- A vocational rehabilitation referral
- A summer youth employee living in an empowerment zone
- A food stamps (SNAP) recipient, or
- A long-term unemployment recipient
For most employers, this credit typically tops out at $2,400 per employee. To certify that your new hire is a member of one of these groups, you must submit Form 8850 to your state’s workforce agency within 28 days of the employee’s start date. To claim the credit, your employee must have worked at least 120 hours, not worked for you previously, and not be your legal dependent or family relative.
Forms needed to file: 8850 and 5884
Empowerment Zone Employment Credit
This credit is similar to the Work Opportunity Credit in that it rewards you for employing people less likely to get a job offer. The difference? The employee is identified not by who they are but where they live and work–specific geographic zones the Department of Housing and Urban Development (HUD) has listed as being in need of investment.
With this credit, employers can claim 20 percent of the worker’s first $15,000 in wages for the calendar year, or $3,000 per EZ employee annually. To claim, the employee must have worked for a minimum of 90 days. There are also some minor restrictions on the types of businesses the worker can be employed in. Industrial farming and gambling, for example, aren’t allowed.
Filing for this credit can get a bit tricky, as wages claimed for EZ can’t also be used to file for the ERC and other credits. But a good tax advisor should be able to sort that out for you.
The Empowerment Zone Employment Credit is due to stick around until December 31, 2025, so claim this one while you can.
Form needed to file: 8844
Research and Development Tax Credit
Have you been programming a unique database to ease your in-office workflow? Or building a better mousetrap to keep vermin out of your warehouse? Then you could qualify for the highly valuable R&D tax credit.
Many small businesses don’t apply for this credit because they assume they won’t qualify. In fact, it’s one of the easiest credits to claim. You simply have to show that your business spent time and money inventing or improving a product or process. Most businesses do this naturally in the course of their work.
If your company has been in business for less than five years and has less than $5 million in gross receipts annually, you can claim up to $250,000 in R&D credits. That’s big money for a small venture!
To claim this one, make sure you meet the IRS’s four-part test to qualify. Then document all expenses and activities (including prototyping, meetings, and payroll) that went toward developing your product so you don’t leave any money on the table.
Forms needed to file: 6765 and 8974
Paid Family and Medical Leave Credit
These days, many employees are taking paid family leave to recover from an illness or help care for a vulnerable family member. No worries, though. If you employ less than 500 workers and have a written two-week leave policy for full-time employees, you can turn their paid time off into a major tax credit.
The Paid Family and Medical Leave Credit allows you to recoup 12.5% to 25% of the wages paid to your employees during leave–as much as $5,000 per employee annually. To claim it, your employee:
- Must have been on your payroll for one year
- Must have taken leave for at least two weeks, or 80 hours
- Must have been paid at least 50% of their regular earnings during leave
- Reason for leave covered by the Family and Medical Leave Act (FMLA)
Form needed to file: 8994
Have more questions about tax credits? Contact us at ERC Benefits!
