Tax credit builds employer incentives while reducing tax burden.
Nestled in the $787 billion stimulus package that President Obama signed on Feb. 17 is an expansion of the Work Opportunity Tax Credit to include disabled veterans and "disconnected youths" between the ages of 16 and 25.
WOTC had already been available for businesses that hired people who were either on public assistance, displaced by Hurricane Katrina, or who fall into several demographics that consistently experience high levels of unemployment. The tax credits can be considerable—most are around $1,200 per person and some can be as much as $9,000 per person over two years—depending upon which of 12 targeted groups the WOTC worker falls into.
With the healthcare sector expected to be hard-pressed for new employees as the nation ages and gets sicker, this often overlooked pool of potential employees provides an excellent source of new talent and a smart way to reduce your tax burden.
"It's a win-win for us and the employees," says Paul Diamond, vice president of human resources at Addus HealthCare Inc., a Palatine, IL-based home care provider operating in 16 states. "This gives us an opportunity to hire more of those folks, give them an opportunity for employment, and the same time allows us to take advantage of the tax credits associated with it."
Diamond says that Addus, with 12,000 employees, has seen the value of its WOTC grow steadily from $625,000 in 2006, to more than $1 million in 2008. Despite the recession, Diamond says Addus is on a pace to again surpass $1 million in tax credits in 2009.
Rose Michels, senior director of tax compliance for Louisville, KY-based Kindred Healthcare Inc., says it's not difficult to get senior management to buy into WOTC. "It's a very easy sale. Obviously, when it helps cash flow and reduces your income taxes, it's not a sale; it's a no-brainer," she says.
The challenge lies not in the idea, but in the implementation. Kindred, for example, employs approximately 54,800 employees—including more than 1,000 new hires each month—in 661 locations in 40 states. That includes 82 long-term acute care hospitals and 228 skilled nursing centers. Even with so many locations and employees presenting logistical challenges, Michels says, Kindred has had close to 100% compliance with WOTC eligibility screenings, and has recognized more than $2 million annually in tax credits. "We saw that it provides a lot of benefit to our company as far as cash and credits and savings we could see by maximizing the program," Michels says.
About 12% of the 1,000 or so people that Kindred hires each month qualify for WOTC. "Usually it's in the CNA and the housekeeping positions, but you'd be surprised how many of the RNs and LPNs qualify for the program," Michels says.
Employers looking at WOTC candidates must understand that they are a work in progress. Though enthusiastic, WOTC candidates often have either been out of the workforce for a long time, or have never been in the workforce. They often lack the specific skills, work experience and the educational attainment of other applicants in the general workforce, says Elyse Rosenblum, vice president of workforce readiness, research, and policy at Corporate Voices for Working Families, a Washington, DC-based nonprofit advocacy group.