As we approach 2025, many businesses prioritize efficiency improvements for each new year. However, cost reduction and tax credits are often overlooked as primary objectives.
Working with MJA & Associates through the staffing agency we owned, I can share from personal experience that this change was one of the few that PUT MONEY BACK in our pocket and into our operational budget.
It sounds daunting at first, including forms for each applicant to complete to see if they qualify for a tax credit and sending data to MJA. However, it’s actually a one-time set up and afterwards the process runs itself. Two vendors integrated with COATS Staffing Software – Efficient Hire and MJA – handle forms, reports and qualification.
Given the potential for future changes, it’s important to note that these tax credits for staffing agencies are available at least through the end of 2025. If you haven’t
already, I recommend exploring this opportunity and learn how to avoid common mistakes in using these credits as well.
Jennifer Abandonato, with MJA & Associates shares this article below regarding tax credits that staffing agencies can take throughout the year.
Many staffing firms qualify for tax credits. For instance, the Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who recruit and retain veterans, food stamp recipients, and other individuals from target groups that historically faced barriers securing employment. The program creates economic opportunities that lessen the burden on other government assistance programs.
Discover common mistakes staffing firms make when processing tax credits and how to avoid them.
Overlooking Relevant Credits and Tax Law Changes
Staffing firm representatives should regularly visit IRS.gov to learn about tax credit eligibility and tax law changes. For instance, firms can receive tax credits of up to $9,600 per qualified new hire in a WOTC target group:
- If the employee works at least 400 hours during the first year of employment, the tax credit amount is equal to 40% of the employee’s qualified wages.
- If the employee works at least 120 hours but less than 400 hours, the staffing firm can claim a credit equal to 25% of the employee’s qualified wages.
- The tax credit cannot be claimed for rehired employees.
Improper Documentation and Missed Deadlines
Thorough documentation must be submitted by the deadline to efficiently process the tax credit applications. For instance, a staffing firm representative must obtain certification that an employee is a member of a targeted group to claim the WOTC:
- A staffing firm representative and the job applicant must complete Form 8850 Pre-Screening Notice and Certification Request for the Work Opportunity Credit and either Form 9061 Individual Characteristics or Form 9062 Conditional Certification.
- The staffing firm has 28 calendar days from the new hire’s start date to submit Form 8850 and either Form 9061 or Form 9062 to the designated local agency within the state where the firm is located and the employee works.
- The staffing firm representative can review the Instructions to Forms 8850, 9061, and 9062 and the Department of Labor’s Employment and Training Administration’s website to determine whether additional forms are required to obtain certification.
After receipt of certification from the designated local agency, a staffing firm representative must track each eligible employee’s hours and file Form 5584 Work Opportunity Credit with the firm’s annual tax return. The representative can review the Instructions to Form 5884 for additional information. They also should keep copies of the forms and supporting documentation submitted to the state workforce agency in case of an audit.
Not Seeking Assistance from a Tax Credit Processing Firm
Staffing firm representatives who attempt tax processing on their own face significant challenges and risks:
- The steps to qualify for and receive tax credits can be overwhelming.
- Processing large volumes of new hires takes substantial time.
- Application errors prolong the process and delay receiving tax credits.
In contrast, working with an experienced tax credit processing firm helps staffing firms navigate the process and maximize savings:
- Experienced professionals stay current on tax credit eligibility and tax law changes.
- Tax processing professionals ensure the documentation is accurately completed and submitted by the deadline.
- Staffing firms reduce their federal tax liability.
Get Help with Processing Tax Credits
Partner with MJA & Associates to efficiently and accurately qualify for tax credits to strengthen your staffing firm’s bottom line. Contact us to start the process today.
If you would like more details as to how MJA integrates with COATS Staffing Software to make this process seamless, contact COATS.