Did You Receive Any Tax Credits

Did You Receive Any Tax Credits

Did You Receive Any Tax Credits?

A tax credit is a dollar-for-dollar reduction in the amount of tax that a business or individual owes. This is different from a tax deduction, which reduces taxable income of the business.

Calculation of tax credits happens on tax returns.
  1. If your business is a sole proprietorship, you calculate business-related tax credits as part of your personal tax return. The tax credits reduce the total tax liability on your Form 1040, subject to certain limits.
  2. If your business is a partnership or S Corporation, the tax credit amount is calculated on the business tax return and your portion is reported to you along with other tax information on Schedule K-1. You claim the tax credits on your personal return, subject to certain limits.
Several common business tax credits relate to businesses with employees.
  1. Small Employer Health Insurance Tax Credit, available to businesses with fewer than 25 full-time equivalent employees. Your business must provide health insurance through the Small Business Health Options Program (SHOP), offer coverage to all full-time employees, and pay at least 50% of the insurance premiums. In addition, your employees’ average annual wages must also be $56,000 or less (2020 amount). The credit can be as much as 50% of the premiums paid.
  2. FMLA Tax Credit, available to larger employers (50 or more full-time employees) who pay wages to employees who are on family and medical leave. You must have a written policy in place, offer paid FMLA wages to all eligible employees, pay at least 50% of the employee’s wages, and provide at least two weeks of paid FMLA to full-time employees. The maximum credit is 25% of FMLA wages paid, and has been extended through 2020. Some state-specific rules apply.
  3. Work Opportunity Tax Credit, available to businesses that hire people who have faced employment barriers. Examples of qualifying employees include veterans, disabled individuals, ex-felons, and some long-term unemployment recipients. The Work Opportunity Tax Credit is set to expire after 2020.
  4. Disabled Access Tax Credit, available to businesses that incur expenses to provide access to employees or customers with disabilities. In order to qualify, your business must have annual revenue below $1 million and have no more than 30 full-time employees. Eligible expenses include the cost of removing barriers and acquiring equipment for disabled individuals. The maximum credit is $5,000. 
Tip: There are numerous other business tax credits available for small businesses. Ask your tax accountant which credits may apply to your situation and how your business can qualify.

About the Author

Angela DeLong, EA, has been preparing tax returns for individuals and businesses for 40 years, is an Enrolled Agent with the Internal Revenue Service, and is on the verge of retirement. She has a master’s degree in mathematics and enjoys reading, quilting, traveling, and Biblical archaeology. Angie is happily married and has four adult children and two grandchildren.

Sunrise and Lendio do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice. You should consult a tax, legal, and accounting advisers before engaging in any transaction.

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