Insights on Three Tax Changes to Help You and Your Clients

Gene Marks - CPA, small business expert, author, columnist, and Scaling New Heights main stage presenter and breakout instructor - appeared on Fox Business this morning and provided insight on some tax changes that you may not know that may help you and your clients this tax season. 

In this article, we are providing additional context around Gene's insights, but you can view his segment here (less than 3 minutes).

Work Opportunity Tax Credit

The Work Opportunity Tax Credit may be more important than ever for your clients who are recovering from a pandemic slow-down and starting to hire more employees.

The Work Opportunity Tax Credit (WOTC) is a credit available for wages paid to certain individuals who begin work on or before December 31, 2025. Employers are eligible for the WOTC when they hire and pay wages to individuals "who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups. (listed below).

Generally, the amount of the WOTC is generally 40% of up to $6,000 of wages for individuals in their first year of employment, are certified as being members of a targeted group, and perform at least 400 hours of work for the employer. 

Targeted groups include: 

• Qualified IV-A Recipient
• Qualified Veteran
• Ex-Felon
• Designated Community Resident (DCR)
• Vocational Rehabilitation Referrals
• Summer Youth Employees
• Supplemental Nutrition Assistance Program (SNAP) Recipient
• Supplemental Security Income (SSI) Recipient
• Long-Term Family Assistance Recipient
• Qualified Long-Term Unemployment Recipient

To claim the credit, employers must first complete form 8850 with the potential new hire on or before the day an offer of employment is made. The form must be submitted to the designated local agency located in the state in which the business is located (where the employee works) within 28 days. 

Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit

Instructions for Form 8850

Notes: The WOTC is not available for employee re-hires. Up to $24,000 in wages may be taken into account in determining the WOTC for certain qualified veterans.

Charitable Donation Deductions

Charitable donation deduction limits have increased for 2021 only. both for individual and business donations.

• Individuals who do not itemize can deduct cash donations up to $600 for 2021
• Individuals who itemize can elect to apply an increased limit ("Increased Individual Limit"), up to 100% of their AGI, for qualified contributions made during calendar-year 2021
• C corporations may elect (on a contribution-by-contribution basis) to apply an increased limit of 25% of taxable income for charitable contributions of cashthey make during 2021
• Businesses donating food inventory in 2021 for the care of the ill, needy and infants may qualify for increased deduction limits from 15% to 25%

Limitations and eligibility requirements may apply.

Payroll Tax Exclusion for Employee Student Loan Assistance

Previously, employees would benefit from employer student loan assistance programs, where an employer would make monthly payments directly to a student loan lender. Unfortunately, these programs typically increased the employee's overall taxable income as it was considered additional wages. 

Under the CARES Act, employers and employees now both benefit by paying off student debt. For employers with a Section 127 plan for their employees until December 31, 2025, payments up to $5,250 per year for existing student loan debt can be made by the employer. And the payments are excluded from income for the employee and the employer also gets a payroll tax exclusion.