The IRS has posted information on its Web site about the tax breaks available to businesses when they accommodate disabled individuals. Here is a brief summary of three key tax breaks:
1. The disabled access credit – A small business may be entitled to a nonrefundable credit when it incurs expenses for providing access to individuals with disabilities. To be eligible, the business can’t have earned more than $1 million or have had more than 30 full-time employees in the prior year. This credit is available for expenses in each tax year in which a business qualifies.
Examples of eligible expenses include: removing barriers that prevent accessibility to disabled people; providing interpreters to hearing-impaired individuals; and acquiring or modifying equipment for people with disabilities.
2. The architectural barrier removal deduction – The tax law encourages businesses of any size to remove architectural and transportation barriers to the disabled and the elderly. Your business can deduct up to $15,000 a year for qualified items that normally must be capitalized. The deduction is claimed by listing it as a separate expense on your income tax return.
Furthermore, a small business may be entitled to claim both the disabled tax credit and the architectural barrier removal deduction in the same tax year if it has incurred qualified expenses. To claim both tax breaks, the deduction must be reduced by the amount of the credit claimed. Your tax adviser can handle the details.
3. The Work Opportunity Tax Credit (WOTC) – Under the revised WOTC, a business can take a tax credit up to 40 percent of the first $6,000 of first-year wages of a new-hire if the employee is a member of specified “targeted group.” Thus, the maximum credit is $2,400.
An employee with a disability qualifies as a member of a targeted group as long as the appropriate government agencies have certified the employee as being disabled. The WOTC for a disabled employee is available once he or she has worked for your business for at least 120 hours or 90 days.
The IRS notes that revised WOTC rules apply to veterans with a service-connected disability. The first-year wages taken into account for qualified disabled veterans hired after May 25, 2007 increased from $6,000 to $12,000.
Finally, the IRS addresses a problem experienced by some employers and not-for-profit organizations: the misclassification of workers in “sheltered workshops” as independent contractors rather than employees. IRS Revenue Ruling 65-165 clarifies the treatment of disabled workers in the following situations:
- Individuals in training in a rehabilitation program designed to prepare them for placement in private industry. The intent of the training, which averages 16 weeks in length, is to accustom the individuals to industrial working conditions. These workers are not considered employees of the workshop for employment tax purposes while they are being trained.
- Regular workshop employees who have completed training and are capable of performing one or more jobs in the sheltered workshop temporarily, if awaiting placement in private industry, or permanently, if unable to compete in regular industry. These individuals are paid by the workshop, which provides working conditions and pay scales comparable to those in private industry and fixes working hours and production schedules so an employment relationship is intended. The trained workers in the workshop are treated as employees for federal tax purposes.
- Individuals working at home who are incapable of working in the workshop, who are able to produce salable articles and may sell them wherever they please. These individuals are not considered employees because no employer-employee relationship exists under common law.
Bottom line: With some advance tax planning, your business can maximize the tax benefits available for accommodating disabled people. Consult with a professional tax adviser for implementation of these rules.