December 06, 2017
Small Business Tax Credits for Hiring Disabled Workers
Small businesses are the backbone of the American economy and create 65 percent of new net jobs, according to the Small Business Administration (PDF).
How can small businesses, facing constant financial pressure and increasing government regulations, ensure continued growth? One way is to hire people with disabilities.
To help employers capitalize on the value and talent that people with disabilities can offer, the Federal Government offers three types of tax credits: Disabled Access Credit, Architectural Barrier Removal Tax Deduction and Work Opportunity Tax Credit.
To discover other tax breaks for hiring new employees click here.
Disabled Access Credit
The Disabled Access Credit — a non-refundable annual tax credit for making a business accessible to persons with disabilities — is available to small businesses that earned a maximum of $1 million in revenue or had 30 or fewer full-time employees in the previous year, according to the Internal Revenue Code, Section 44.
The credit equates to 50 percent of expenditures over $250, not to exceed $10,250, for a maximum benefit of $5,000. (There is no credit for the first $250 of expenditures.) Businesses can claim the Disabled Access Credit on IRS Form 8826 (PDF). The credit amount is subtracted from the total tax liability.
Employers can apply this credit toward a variety of costs that include:
- Sign language interpreters for hearing impaired;
- Readers for employees with visual impairments;
- Purchase of adaptive equipment or modification of equipment;
- Production of print materials in accessible formats, such as Braille, audio tape or large print;
- Removal of barriers in buildings or vehicles that prevent a business from being accessible to, or usable by, individuals with disabilities.
Architectural Barrier Removal Tax Deduction
The Architectural Barrier Removal Tax Deduction encourages any size business to remove architectural and transportation barriers to the mobility of persons with disabilities. Businesses that comply qualify for a tax deduction of $15,000 per year.
Small businesses can use these incentives in combination with the Disabled Access Credit if the expenditures incurred qualify under both Section 44 and Section 190 of the IRS tax code.
For example, a small business that spends $20,000 for access modifications may take a tax credit of $5000 and a deduction of $15,000. The deduction is equal to the difference between the total costs and the amount of the credit claimed.
Eligible architectural adaptations include:
- Providing accessible parking spaces, ramps and curb cuts;
- Making telephones, water fountains and restrooms accessible to persons using wheelchairs;
- Making walkways and paths of travel accessible (e.g., 32-inch doorways when open at a 90-degree angle; 36-48 inch wide hallways or sidewalks free of obstruction);
- Providing accessible entrances to buildings (e.g., automatic doors, proper door weights, etc.).
Businesses cannot use the tax deduction for expenses related to new construction, complete renovation or normal replacement of depreciable equipment. Nor can they use it for the same cost covered by another tax credit.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit is the third tax advantage available to all businesses. It allows employers who fill a vacant position with a WOTC-certified employee to qualify to claim a federal income tax credit for a portion of the new employee’s salary.
Individuals eligible for certification include job seekers with disabilities referred by a vocational rehabilitation service or who have received Social Security Income (SSI) benefits within 60 days before being hired.
The tax credit applies to the first $6,000 in wages paid to each new hire for the first year of employment, with a maximum tax credit of up to $2,400 per person.
Businesses must complete and submit IRS Form 8850 (PDF) and submit the Department of Labor’s Employment and Training Administration (ETA) Form 9061 (PDF).
WOTC Extension for Hiring Veterans with Disabilities
A version of the WOTC applies to employers who hire military veterans with service-connected disabilities through the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011.
The extension provides up to $4,800 of first-year wage reimbursement for veterans with service-connected disabilities hired within one year of leaving the armed forces. A $9,600 refund of first-year wages is available for those who have been unemployed for at least six months.
The following resources provide more information about Federal Government tax credits and deductions for hiring persons with disabilities:
- Tax Benefits for Businesses Who Have Employees with Disabilities (IRS)
- Tax Incentives for Providing Business Accessibility (ODEP)
- Facts About Disability-related Tax Provisions (EEOC)
- Veterans Opportunity to Work (VA)
- Small Business Disability Inclusion Factsheet (ODEP)
- Hiring People with Disabilities (SBA)
- Tax Incentives Fact Sheet (Ask EARN)
- Making Sense of Tax Credits for Hiring People with Disabilities (Think Beyond the Label)
- Hire Gauge. Here’s an online calculator that helps small businesses determine the approximate amount of tax credits and deductions for hiring persons with disabilities. (Think Beyond the Label)