Work Opportunity and Fuel Tax Credits: The IRS Helps Those Who Help Themselves
Originally published on June 20, 2017
Updated on October 30th, 2023
Reducing your tax burden is a key component in strengthening your bottom line, yet many businesses struggle with exactly how to do this.
The best way to start is by researching tax credits, which are often overlooked by many manufacturers. While the Internal Revenue Service (IRS) has a wealth of information on them, they are not going to shout it from the rooftops or spoon-feed it to you. You have to do your research and find out what will work for your company and situation.
Thankfully, your CPA firm can help! Here is some information on two federal tax credits that manufacturers commonly disregard (or do not know about).
Work Opportunity Tax Credit (WOTC)
This federal tax credit is an incentive for employers to hire people from specific groups who typically face certain obstacles when seeking employment. This credit ranges from $1,200 to $9,600 for each employee. According to the U.S. Department of Labor, employers claim over $1 billion in WOTC tax credits every year
Eligible employees fall under the following categories:
- Unemployed and disabled veterans
- Temporary Assistance for Needy Families (TANF) recipients
- SNAP (food stamp) recipients
- Designated community residents (individuals living in in rural renewed counties or empowerment zones )
- Vocational rehabilitation referred individuals
- Ex-felons (within one year of conviction or release from prison)
- Supplemental security income (SSI) recipients
- Summer youth employees (16-17 years old, works for the employer between May 1 – September 15 and resides in an empowerment zone)
- Qualified long-term unemployment recipient (hired after December 31, 2015, in a period of unemployment that is not less than 27 consecutive weeks and includes a period in which he or she received unemployment compensation)
There are exceptions to these qualifications, including relatives and dependents of the employer, most former employees and majority owners of the business. Wages for these employees are also subject to the Federal Unemployment Tax Act (FUTA).
To take advantage of the WOTC, complete IRS form 8850 and ETA form 9061 or 0962 and submit them to your state workforce agency within 28 calendar days of the start date of the employee. Once the employee is certified as eligible, file for the tax credit with the IRS.
Fuel Tax Credit
Federal fuel taxes are levied to help fund highway construction and maintenance. But what if the fuel you purchase goes to vehicles that never hit the open road? For these and other reasons, the Fuel Tax Credit offsets the federal fuel taxes for vehicles that have little to no highway use (and therefore are not causing more wear and tear on the roads).
The Fuel Tax Credit can be claimed for the purchase of gasoline, aviation gasoline, undyed diesel fuel, undyed kerosene, and kerosene used in aviation. The vehicles consuming this fuel must be operated in one of these qualifying uses:
- On a farm for farming purposes
- Off-highway business use (construction)
- In a boat engaged in commercial fishing (does not include sport fishing)
- In certain intercity and local buses
- In a school bus
- Exclusive use by a qualified blood collector organization
- Exclusive use by a nonprofit educational organization
- Exclusive use by a state, political subdivision of a state, or the District of Columbia
- In an aircraft or vehicle owned by an aircraft museum
- In military aircraft
- Certain helicopter and fixed-wing aircraft uses
The credit must be claimed during the year you used the fuel. When working with your CPA, make sure to supply him or her with the number of gallons purchased and the type and use of the fuel.
The first step to claim your credit is to complete IRS Form 4136. Choose the purpose(s) under which the fuel was used, enter the number of gallons to each chosen purpose, and then multiply by the per-gallon rate listed on the form to see the amount of your fuel tax credit. (If you have multiple uses selected on the form, add these results to get your total fuel tax credit.)
From there, the procedure depends upon your company’s business structure:
- Partnerships (other than electing large partnerships) include a statement on Schedule K-1 showing the share of each partner of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. Each partner claims the credit on his or her income tax return for his or her share of the fuel used by the partnership.
- Individuals, corporations, farmer cooperative associations and trusts must make the claim on the appropriate line of their applicable income tax return.
Your CPA firm can help you take advantage of these and other tax credits. The steps to claim them might seem like an inconvenience, but consider the thousands of dollars you can save each year by using them!
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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