Employment Tax Credits
Tax credits are even better than tax deductions. A tax deduction is worth only as much as the tax bracket you are in. For example, if you are in the top federal income tax bracket for individuals, 35% in 2012, a $100 deduction saves $35 in taxes. Tax credits reduce your taxes dollar-for-dollar. A $100 tax credit saves $100 in taxes.
Employer’s Employment-Related Tax Credits
There are a number of tax credits related to the employment of workers. These tax credits reduce your deduction for compensation dollar-for-dollar. For example, if your deduction for compensation is $40,000 and you are entitled to claim a $2,000 employment tax credit, you may deduct only $38,000.
Employment-related tax credits reduce your deduction for wages paid to your employees.
WORK OPPORTUNITY CREDIT
To encourage employers to hire certain individuals from specially targeted groups, there is a tax credit called the work opportunity credit. The credit of up to $9,600 for 2012 applies to certain veterans.
Prior to 2012, there was a much broader credit, which may be extended retroactively for 2012. If extended, then the following information applies for 2012: The credit applies to such targeted groups as Aid to Families with Dependent Children (AFDC) recipients, food stamp recipients, ex-felons, high-risk youth, and those in areas that suffered certain population decline. The credit is 25% of the first $6,000 of wages ($3,000 of wages for summer youth) for those who work between 120 and ...