When hiring employees for your small business, it’s important and can be advantageous to consider hiring certain categories of job seekers that statistically tend to have a difficult time finding a job, including disabled individuals, ex-felons, veterans, and more.
They’re also often considered protected classes, particularly job seekers with disabilities. This means that choosing a candidate over one another and factoring in their disability into your decision could potentially lead to a discrimination lawsuit.
According to the Bureau of Labor Statistics, individuals with a disability are much less likely to be employed than people without a disability, and the unemployment rate for ex-felons is five times higher than that of the general population.
Unemployment rates for veterans are close to the national averages for their demographics. However, many businesses have found that hiring employees from these groups is beneficial.
What is a targeted individual?
According to the Internal Revenue Service, a targeted individual is someone who has faced significant barriers to employment. Examples include veterans, ex-felons, certain people with disabilities, and certain people who have received government financial assistance for certain periods of time. Because of their setbacks, the IRS offers tax credits to companies that hire qualifying individuals.
2 examples of inclusive work environments for targeted individuals
The owners of Bitty & Beau’s Coffee Shop, a family-run operation based in Wilmington, NC, built their business concept around providing valuable employment opportunities for individuals with intellectual and developmental disabilities.
“Most of our staff have never had jobs before, so it’s helped them build self-confidence and interact with people,” founder Amy Wright said. “They’re not living in isolation; they have real-world responsibilities and a sense of purpose.”
Other businesses, like Minneapolis restaurant All Square, work to give employment to ex-felons who can’t find work because of their criminal history.
“What’s the point of going to prison and doing your time if you get out and then you’re just punished?” founder Emily Hunt Turner said. “We find that so often, just existing and surviving post-incarceration is the standard, and we’re looking to challenge and change that.”
Aside from creating an inclusive workplace environment, there are also financial benefits to hiring workers who would otherwise have a hard time finding employment.
The federal government implemented the Work Opportunity Tax Credit (WOTC) to help increase the employment rate for these historically “targeted groups who have consistently faced significant barriers to employment,” according to the US Department of Labor.
Aside from the WOTC, there are also additional programs and credits for hiring certain targeted groups that can benefit your business.
Work Opportunity Tax Credit
The WOTC program is a tax credit available to employers who hire individuals from specific targeted groups who face significant employment barriers.
You are qualified to claim the tax credit if you hire employees who fall into the following categories of workers:
- Veterans
- Recipients of Temporary Assistance for Needy Families (TANF)
- Supplemental Nutrition Assistance Progam (SNAP) recipients
- Residents of designated high poverty and unemployment areas, known as Empowerment Zones or Rural Renewal Counties
- People with disabilities who have been recommended by a Vocational Rehabilitation program
- Ex-felons
- Supplemental Security Income (SSI) Recipients
- Member of a Summer Youth Employee Program who lives in an Empowerment Zone
- People who have received unemployment benefits for at least 27 weeks
Each worker category comes with its own set of qualifications. Take a look at this WOTC Eligibility Chart to learn more about how to qualify your employees.
Note: You cannot receive the tax credit for hiring family members, dependents, or majority owners of your business, even if they would otherwise qualify for one of the categories.
How to qualify employees
Both you and eligible applicants must complete two separate forms during the hiring process to secure the tax credit, or it won’t go into effect. These include IRS Form 8850 and Department of Labor Form 9061.
Form 8850 is the IRS pre-screening form. The new employee will complete the first page of this form to prove their eligibility. Once you hire the applicant, you will complete the second-page providing information on the business and the new employee.
Your applicant must also complete Form 9061, which verifies the necessary documents the applicant needs to prove eligibility. After they submit the documents and form, verify them and file them, along with Form 8850, with your state workforce agency (not the IRS) no later than the 28th day after your new hire starts the job.
After you submit the forms, you will receive a determination letter providing the worker’s eligibility status from your state agency.
Additional benefits for hiring workers with disabilities
If you employ workers with disabilities, you may also be eligible to receive the Disabled Access Credit. The additional benefit provides a non-refundable credit. The credit makes up for money spent on accommodations for individuals with disabilities, known as “access expenditures.”
Eligible access expenditures include money you spent to:
- remove barriers that prevent a business from being accessible to or usable by individuals with disabilities
- provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals
- provide qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments
- acquire or modify equipment or devices for individuals with disabilities.
To be eligible, your business must not have earned more than $1 million in the previous year. The credit is also only available to you if you had no more than 30 employees in the same timeframe. If you qualify for the credit, you may take the credit each year you incur access expenditures.
You can submit your access expenditure report with Form 8826 to the IRS to claim the tax credit.
Additional benefits for hiring ex-felons
The US Department of Labor offers additional resources if you hire ex-felons through the Federal Bonding Program. The program provides up to $5,000 in protection against losses if a high-risk employee commits forgery, theft, embezzlement, or larceny.
Learn more about the bonding program by visiting the Bonds4Jobs website.
State and local benefits
There are many other programs on the state and local levels that aim to promote the hiring of targeted individuals. For example, employers who operate in Philadelphia and hire ex-felons who have been released within the past five years can receive a cash reimbursement from the Fair Chance Hiring Initiative.
Check with your state department of labor to learn more about the incentive programs in your area. Make sure you’re aware of relevant laws on hiring felons as well.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
