Your company paid employees who were eligible for work opportunity credit $25,000 last year. Of these...
Your company paid employees who were eligible for work opportunity credit $25,000 last year. Of these wages, $21,000 is eligible for a tax credit of 40% of the wages. The remaining wages are eligible for a tax credit of 25% of the wages. The company’s wages expense must be reduced by the amount of the credit. If the company’s marginal tax rate is 34%, how does this affect your company’s taxes?
Homework Answers
Total WOTC (Work opportunity tax credit) -eligible wages paid = $ 25,000
Wages eligible for 40% credit = $ 21,000
Tax credit = $21000 * 40% = $ 8400
Wages eligible for 25% credit = $ 4000
Tax credit = $ 4000 * 25% = $ 1000
Total eligible Work Opportunity tax credit = $ 9400
This tax credit of $ 9400 can be directly deducted from business income tax on dollar to dollar basis and subject to normal carry-back and carry-forward rules, irrelevant of the marginal tax rate and subject maximum to business income tax.
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