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Tax Incentives for Businesses
The following information* describes the three tax incentives that are available to help employers cover the cost of accommodations for employees with disabilities and to make their place of business accessible for employees and/or customers with disabilities.
Small Business Tax Credit
IRS Code Section 44, Disabled Access Credit
What is it? Small businesses may take an annual tax credit for making their businesses accessible to persons with disabilities.
Who is eligible? Small businesses that in the previous year earned a maximum of $1 million in revenue or had 30 or fewer full-time employees are eligible.
What is the amount? The credit is 50 percent of expenditures over $250, not to exceed $10,250, for a maximum benefit of $5,000. The credit amount is subtracted from the total tax liability after calculating taxes.
What expenses are covered? The credit is available every year and can be used for a variety of costs such as:
- § Sign language interpreters for employees or customers who have hearing impairments
- § Readers for employees or customers who have visual impairments
- § The purchase of adaptive equipment or the modification of equipment
- § The production of print materials in alternate formats (e.g. Braille, audio tape, large print)
- § The removal of architectural barriers in buildings or vehicles
What expenses are not covered? The tax credit does not apply to the costs of new construction, and a building being modified must have been placed in service before November 5, 1990.
How can this credit be claimed? Businesses can claim the Disabled Access Credit on IRS Form 8826.
Architectural/Transportation Tax Deduction
IRS Code Section 190, Barrier Removal
What is it? Businesses may take an annual deduction for expenses incurred to remove physical, structural, and transportation barriers for persons with disabilities at the workplace.
Who is eligible? All businesses are eligible.
What is the amount? Businesses may take a tax deduction of up to $15,000 a year for expenses incurred to remove barriers for persons with disabilities. Amounts in excess of the $15,000 maximum annual deduction may be depreciated.
What expenses are covered? The deduction is available every year. It can be used for a variety of costs to make a facility or public transportation vehicle, owned or leased for use in the business, more accessible to and usable by persons with disabilities. Examples include the cost of:
- § Providing accessible parking spaces, ramps, and curb cuts
- § Providing telephones, water fountains, and restrooms which are accessible to persons using wheelchairs
- § Making walkways at least 48 inches wide
What expenses are not covered? The deduction may not be used for expenses incurred for new construction, for a complete renovation of a facility or public transportation vehicle, or for the normal replacement of depreciable property.
May I use the tax credit and tax deduction together? Small businesses may use the credit and deduction together if the expenses incurred qualify under both Sections 44 and 190. For example, if a business spent $12,000 for access adaptations, it would qualify for a $5,000 tax credit and a $7,000 tax deduction.
Are there limits on annual usage? Although both the tax credit and deduction may be used annually, if a business spends more than may be claimed in one year, it cannot carry over those expenses and claim a tax benefit in the next year.
How can this credit be deducted? The amount spent is subtracted from the total income of a business to establish its taxable income. In order for expenses to be deductible, accessibility standards established under Section 190 must be met.
For more information on IRS Code Sections 44 and 190, contact:
Mark Pitzer, Attorney
Office of Chief Counsel, IRS
1111 Constitution Avenue NW
Washington, DC 20224
Phone: 202-622-3110
Work Opportunity Tax Credit
What is it? Work Opportunity Tax Credit (WOTC), which replaces the Targeted Jobs Tax Credit (TJTC) program, provides a tax credit for employers who hire certain targeted low-income groups, including vocational rehabilitation referrals, former AFDC recipients, veterans, ex-felons, food stamp recipients, summer youth employees, and recipients of Supplemental Security Income (SSI).
Who is eligible? Employers that hire SSI recipients or individuals who have been referred by a certified vocational rehabilitation program may claim the WOTC. For details on any additional requirements, contact your local State Employment Security Agency (SESA).
What is the amount? An employer may take a tax credit of up to 40 percent of the first $6,000, or up to $2,400, in wages paid during the first 12 months for each new hire.
What are the effective dates? October 1, 1997 through July 1, 2001. This program is subject to yearly Congressional renewal.
What are the Minimum Employment Requirements? Eligible employees must work 180 days or 400 hours; summer youth must work 20 days or 120 hours. A partial credit of 25 percent for certified employees who worked at least 120, but less than 400 hours, may be claimed by the employer.
What agency provides WOTC certification? The local State Employment Security Agency (SESA) provides WOTC certification.
How do I file for this credit? Submit a completed IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, to your local SESA.
How does it work? The employer determines likely eligibility by including the WOTC Pre-Screening Notice as part of the application process. On or before the day employment is offered, the Pre-Screening Notice must be signed by the employer and employee and mailed to SESA within 21 days after the employee begins work. The employer documents eligibility (based on information received from the employee) and submits documentation to the SESA. SESA certifies which individuals are eligible for WOTC and notifies the employer in writing for purposes of filing the tax credit.
Where can I obtain IRS Form 8850? Call 1-800-TAX-FORM (829-3076) or visit the IRS Website at www.irs.ustreas.gov/prod.