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WOTC is a
federal tax credit earned when hiring new employees from target
groups with historically high unemployment rates.
What is the advantage of a tax
credit vs. a deduction? A tax credit adds directly to your
profits while a tax deduction reduces the amount of income you are
taxed on.
In other words; a tax credit takes
place at the very end, after all income tax deductions are removed.
That means tax credits are applied to the final tax amount payable to
the IRS. For this reason a tax credit is tax-free profit added directly
to the bottom line of companies who participate in the tax credit
program.
There are a few more details,
that can be handled by your tax accountant, but what we've
presented here is the essential difference between tax credits and a
deduction.
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