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4 Business Tax Credits to Consider

By: Mike Gallagher, District Director
North Dakota District Office

As a small business owner, you know the challenges of finding good employees while being able to pay them a competitive wage.  One thing that can give small businesses an edge over larger firms is tax credits.

What are tax credits and how can they benefit you? 
A federal tax credit is a reduction in your tax liability. In other words, if you qualify for a $1,000 tax credit and you owe $1,000 in federal income taxes, you would pay nothing to the IRS. Tax credits can sometimes be applied to previous taxes or carried forward to future taxes.  If you can apply them to a prior year and have no tax liability in the present tax year, you may be able to get a refund.  This would add to your current cash flow.

Perhaps I have sparked your interest and you think you might want to look into what tax credits can offer you and your business.  Although there are many tax credits available including things like Biofuel Producer Credit, Energy Credit and others, let’s focus on a few that will help you cover costs related to hiring or providing benefits to employees.

Credit for Employer Provided Childcare Facilities and Services
Finding affordable childcare is a critical issue for many employees. Your business can receive a credit for 25% of qualified expenses that your business paid for employee childcare. You can also receive a 10% credit for qualified expenses paid for childcare resource and referral services. More information can be found in the instructions on IRS Form 8882.

Credit for Small Employer Health Insurance Premiums
This credit is only available for a period of two consecutive tax years to small employers (generally those with 25 or fewer full-time-equivalent employees). It provides credit for a percentage of the premiums that you, the employer, paid during the tax year for specific types of employees enrolled in a qualified Small Business Health Option Program (SHOP) Marketplace health plan.

Credit for Employers’ Social Security and Medicare Taxes Paid on Certain Employee Tips
This credit is available for your business if you pay Social Security and Medicare taxes on tips received by employees in food and beverage establishments. This credit covers your business’s (employers) portion of the Social Security and Medicare Taxes paid.

Work Opportunity Credit
The Work Opportunity Credit helps businesses hire employees from specific targeted groups. Qualified first and/or second-year wages paid to or incurred for these targeted groups are eligible for the credit.  The individuals who are members of these targeted groups include:

  • Qualified IV-A Recipients – This is an individual who is a member of a family receiving assistance under the Temporary Assistance for Needy Families (TANF).  The assistance must be received for any 9 months during the 18 month period ending on the hiring date.
  • Qualified Veteran
    • A member of a family that has received SNAP benefits for at least a 3 month period during the 15 month period ending on the hiring date.
  • Unemployed for a period or periods totaling at least 4 weeks but less than 6 months in the 1-year period ending on the hiring date.
  • Unemployed for a period totaling at least 6 months in the 1 year period ending on the hiring date.
  • Entitled to compensation for a service-connected disability and was unemployed for a period totaling at least 6 months.
  • Qualified Ex-Felon – This is an individual who has been convicted of a felony under any federal or state law, and is hired not more than 1 year after the conviction or release from prison for that felony.
  • Vocational Rehabilitation Referral – This is an individual who has a physical or mental disability resulting in a substantial handicap to employment and who was referred to the employer upon completion of rehabilitation services by a rehabilitation agency approved by the state or the Department of Veterans Affairs.
  • Others eligible
    • Summer Youth Employee
    • Recipient of SNAP benefits
    • Supplemental Security Income (SSI) Recipient
    • Long-term Family Assistance Recipient

As you can see, there are many categories of individuals that qualify the employer for tax credits.  You may have to make some inquiries to Job Service, Vocational Rehab and other organizations to see if there are eligible individuals with the skill set needed in your business. With the credits you can be doing yourself a favor by getting good employees and having the federal government provide a funding offset that will pay for training these employees.  Generally they have to have a certification from the organization assuring their eligibility and they generally have to be employed for a minimum period of time.

Using tax credits takes some time, some work and good planning. They also are not for everybody - if you consistently pay very little in taxes, you may not get effective use from these credits.  

Whether you decide to look into tax credits or not, remember that by using these opportunities you will be providing an individual with meaningful employment and possibly a career path forward while taking advantage of an economic opportunity for your business.

Mike GallagherMike Gallagher joined the U.S. Small Business Administration in 1984 as a Business Development Specialist.  He was chosen as the Deputy District Director in 2005 and the District Director in November 2013.  A graduate of the University of North Dakota, Mike is a Certified Public Accountant and a former business owner.  He can be reached at