Business tax credits can be a powerful tool for small businesses to lower their tax bill directly. If you’re eligible for any of the tax savings credits—such as Work Opportunity Tax Credit, Employer Credit for Payroll Taxes Paid on Employee Tips, Employer Credit for Paid Family & Medical Leave, and Disabled Access Credit—you’ll likely need to file IRS Form 3800, General Business Credits.
TaxAct, our top recommendation for preparing small business tax returns, can complete all the necessary small business tax credit forms. You can start your business tax return for free if you visit TaxAct.
1. Work Opportunity Tax Credit
Who qualifies: Companies that hire and pay wages to workers who have certification from a state workforce agency for being members of one of the 10 groups named below:
- IV-A recipients
- Designated community residents
- Vocational rehabilitation referrals
- Summer youth employees
- SNAP benefits recipients
- Supplemental security income recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
General amounts: For an employee who has been with the company for less than a year, can prove membership in a targeted group, and has worked for the company for 400 hours or more, the normal WOTC your business can claim is 40% of the first $6,000 of wages. For employees who worked at least 120 hours but less than 400 hours in their first year, the credit is lowered to 25% of their qualified first-year wages. Generally, the maximum normal tax credit of $2,400 is available.
We have step-by-step guides on how to claim the WOTC for some of these groups:
- How To Claim the Tax Credit for Hiring Felons
- How To Claim the Tax Credit for Hiring Veterans
- How To Claim the Tax Credit for Vocational Rehabilitation Referrals
- How To Claim the Tax Credit for Long-term Unemployment Recipients
2. Small Employer Health Insurance Premiums Tax Credit
Who qualifies: Small employers qualify for this credit if one or more of the following applies:
- You have fewer than 25 full-time equivalent employees
- Your average employee salary is $56,000 per year or less
- You pay at least 50% of your full-time employees’ premium costs
- You offer Small Business Health Options Program (SHOP) coverage to all of your full-time employees
General amounts: This is worth up to 50% of the health care premiums you pay for your employees (35% for non-profit employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $27,000 or less but begins to phase out when there are more than 10 FTE employees or average employee wages are above $27,000.
Where it is claimed: This credit is calculated using IRS Form 8941, Credit for Small Employer Health Insurance Premiums. If you qualify, you can use Form 8941 to claim the credit for two consecutive tax years.
3. Employer Credit for Payroll Taxes Paid on Employee Tips
Who qualifies: Employers in the food and drink industry can get a tax credit for payroll taxes they pay. To qualify, your business must have had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption—if tipping of employees for delivering or serving food or beverages is customary.
On those tips, you must have also paid or been responsible for employer social security and Medicare taxes.
General amounts: The credit is a 7.65% percentage of total tips reported, minus any tips used to meet the federal minimum wage.
Where it is claimed: If you qualify, use IRS Form 8846 to claim this tax credit.
4. Small Employer Pension Plan Startup Costs & Auto-enrollment
Who qualifies: To qualify, you must have had no more than 100 workers who were paid at least $5,000 in the year before you set up the plan. You also cannot have had a retirement plan in place for the same employees in the 3 years before setting up the plan.
General amounts: Employers who qualify may be able to get a tax credit of up to $5,000 per year for three years to cover the ordinary and necessary costs of starting a SEP, SIMPLE IRA, or qualified plan (like a 401(k)).
Where it is claimed: You may claim the credit using IRS Form 8881.
5. Employer Credit for Paid Family & Medical Leave
Who qualifies: This is available to all employers. To qualify, employers must have a written policy that gives eligible workers at least two weeks of paid family and medical leave per year, paid at 50% or more of normal wages. Employers can also get the credit if they have short-term disability policies that meet the credit’s requirements.
General amounts: The credit is a percentage of the wages given to an eligible worker while they are on family or medical leave for up to 12 weeks per tax year. The applicable percentage is 12.5%, and it goes up by 0.25% for every percentage point that the amount given to a qualifying employee is more than 50% of the employee’s wages. The maximum applicable percentage is 25%.
Where it is claimed: If you qualify, claim the credit using IRS Form 8994.
6. Employer-provided Child Care Credit
Who qualifies: Employers who pay money to run a childcare center, contract with child care facilities to provide services, or buy, build, fix up, or expand land that will be used as part of a qualified childcare center are eligible.
General amounts: You may claim a credit that is equal to 25% of the qualified childcare facility expenditures plus 10% of the qualified child care resource and referral expenditures paid or incurred during the tax year. The credit is limited to $150,000 per tax year.
Where it is claimed: You can claim this credit using IRS Form 8882 if you’re eligible.
7. Disabled Access Credit
Who qualifies: Employers with gross receipts for the preceding tax year that did not exceed $1 million or had no more than 30 full-time employees during the preceding tax year may be eligible if costs were incurred to comply with the Americans with Disabilities Act of 1990 (Public Law 101-336).
General amounts: The credit is worth up to $5,000 for any qualified expense in excess of $250.
Where it is claimed: If you qualify, use IRS Form 8826.
These are just some of the most common small business tax credits your business might be eligible for during the tax year. You might be eligible for other tax credits as well. Do not miss out on a chance to change your tax bill this tax season—take a peek at IRS Form 3800 to see a complete list of over 30 general business credits.