Friday, February 1, 2013

Tax Credit for Hiring Teenagers for the Summer

Internal Revenue Code section 51 provides up to $2,400 in tax credits to employers for hiring certain new employees.  This "work opportunity" tax credit is calculated as 40% of up to $6,000 of the new employee's wages.  The credit expires at the end of 2013, though it has been extended several times in the past.

The credit applies to employees who are members of certain disadvantaged targeted groups, like food stamp recipients, ex-convicts, unemployed or disabled veterans, child welfare recipients, and... low-income 16 and 17 year old summer workers.

Technically the credit applies to a "qualified summer youth employee," who:
1) works for the employer between May 1 and September 15,
2) is either 16- or 17-years-old on the first day of the job,
3) has not worked for the employer before, and
4) is certified by State employment agencies as living in certain low-income communities.

Only $3,000 of the teenager's wages during the summer count toward the 40% credit.  When the credit was first introduced in 1982, it was a much more generous 85% of wages paid to teenage summer employees.

While amusement parks and other retailers could definitely use free money for hiring teenage employees, it is not clear why Congress chose to apply the credit only to summer jobs for 16- and 17-year-olds.  A better government policy may be to encourage permanent jobs for older teenagers, who are more likely to be supporting their own family and actually need a full-time job year-round.


§ 51 Amount of credit.
(a) Determination of amount.  For purposes of section 38 , the amount of the work opportunity credit determined under this section for the taxable year shall be equal to 40 percent of the qualified first-year wages for such year.
(b) Qualified wages defined.  For purposes of this subpart—
(1) In general.  The term “qualified wages” means the wages paid or incurred by the employer during the taxable year to individuals who are members of a targeted group.
(2) Qualified first-year wages.  The term “qualified first-year wages” means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer.
(3) Limitation on wages per year taken into account.  The amount of the qualified first-year wages which may be taken into account with respect to any individual shall not exceed $6,000 per year
***
(d) Members of targeted groups. For purposes of this subpart—
(1) In general. An individual is a member of a targeted group if such individual is—
(A) a qualified IV-A recipient,
(B) a qualified veteran,
(C) a qualified ex-felon,
(D) a designated community resident,
(E) a vocational rehabilitation referral,
(F) a qualified summer youth employee,
(G) a qualified supplemental nutrition assistance program benefits recipient,
(H) a qualified SSI recipient, or
(I) a long-term family assistance recipient.
***
(7) Qualified summer youth employee.
(A) In general. The term “qualified summer youth employee” means any individual—
(i) who performs services for the employer between May 1 and September 15,
(ii) who is certified by the designated local agency as having attained age 16 but not 18 on the hiring date (or if later, on May 1 of the calendar year involved),
(iii) who has not been an employee of the employer during any period prior to the 90-day period described insubparagraph (B)(i) , and
(iv) who is certified by the designated local agency as having his principal place of abode within an empowerment zone, enterprise community, or renewal community.
(B) Special rules for determining amount of credit. For purposes of applying this subpart to wages paid or incurred to any qualified summer youth employee—
(i) subsection (b)(2) shall be applied by substituting “any 90-day period between May 1 and September 15” for “the 1-year period beginning with the day the individual begins work for the employer”, and
(ii) subsection (b)(3) shall be applied by substituting “$3,000” for “$6,000”.



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