Alternative Tax Credits for Business Employee Retention

August 25, 2023
Dayes Law Firm

As a small business owner, you could be taking advantage of numerous tax credits to lower your tax liability. While understanding and claiming tax credits may sound tedious, doing so can save you a significant amount of money come tax season. 

Several tax credits can reward and promote employee retention in your business. Explore a few alternative tax credits and incentives below.

What Is a Tax Credit? 

A tax credit is a monetary amount you can subtract from the taxes you owe. After deducting your applicable tax credits, you’ll be left with an adjustable gross income (AGI) figure on which you will base your tax returns. 

The IRS won’t automatically apply tax credits to your returns. Instead, you’ll need to calculate the amount you would be eligible for, then claim the credits yourself. Typically, claiming a tax credit involves filling out a specific form as part of your income and/or payroll tax returns. 

Tax Credits and Incentives for Employee Retention

The following are a few alternative tax credits you may qualify for to reward or promote employee retention:

Work Opportunity Tax Credit

The Work Opportunity Tax Credit can reward you for hiring employees in specific categories — namely, those who have faced barriers to employment. These qualified employees may include:

  • Veterans
  • Ex-felons
  • Designated community residents (DCRs)
  • SSI recipients
  • Long-term family assistance recipients
  • Summer youth employees
  • SNAP benefit recipients
  • Long-term unemployment recipients

To claim this credit, you must apply for certification to verify that a new hire is part of one of these target groups. Then, you can claim the WOTC as a general business tax credit against your income taxes. 

Employee Retention Credit 

The Employee Retention Credit (ERC) is available to employers who experienced a significant decrease in gross receipts in 2020 and/or 2021 due to pandemic-related shutdowns. As a small business, you may be able to claim this credit for all of your employees. Even if you’ve already submitted your 2020 and 2021 tax returns, you can fill out an amendment before April 2024 to claim this credit.

Alternative Minimum Tax (AMT) Credit

If your business paid the Alternative Minimum Tax (AMT) in previous years, you may qualify for a tax reduction. 

You may have been subject to the AMT if you calculated your standard deduction to be higher than your Tentative Minimum Tax calculation when filling out your tax returns. This taxation method typically applies to those who exercised Incentive Stock Options (ISOs) in a given tax year. You may apply for an AMT tax credit to lower your future tax bills. 

Small Business Health Options Program (SHOP)

If you have 25 or fewer full-time equivalent employees, you may be eligible for a tax credit under the Small Business Health Options Program (SHOP). This credit would cover up to 50% of your health insurance premium contributions for employees.

If you don’t already offer health insurance, using this tax credit could allow you to promote employee retention through this benefit without hurting your revenue too severely. 

Small Business R&D Payroll Tax Credit

If your business is still starting, you may qualify for the small business R&D payroll tax credit, which would offset your payroll and income tax liability. You may be eligible if you have less than five years of revenue and your revenue totals less than $5 million in that period. 

Seek Tax Assistance from Dayes Law Firm 

Do you need help claiming alternative tax credits for your small business? Trust the qualified tax attorneys at Dayes Law Firm. Contact Dayes Law Firm at (800) 503-2000 today for a free consultation about how the ERC impacts your business’s taxable income.