Employer Tax Credits Every Small Business Should Revisit Before Year-End

As the year wraps up, small business owners often focus on closing their books and preparing for tax season—but one area worth revisiting is employer tax credits. These dollar-for-dollar reductions of tax liability reward smart hiring, employee benefits, and sustainable upgrades. Unlike deductions, credits reduce your tax bill directly, making them particularly valuable.

In this article, we’ll look at three major “employer advantage” credits especially relevant for small businesses in 2025:

• The Work Opportunity Tax Credit (WOTC)
• The Small Business Health Care Tax Credit
• Energy efficiency incentives, such as the Section 179D deduction

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1. Work Opportunity Tax Credit (WOTC)

2. Small Business Health Care Tax Credit

What It Is

The Small Business Health Care Tax Credit is another valuable employer tax credit designed to help smaller businesses offset the cost of providing employee health coverage. To qualify, you generally need:

• Fewer than 25 full-time equivalent employees (FTEs)
• Average annual wages below the IRS threshold (about $62,000 for recent years)
• To contribute at least 50% of employee-only health insurance premiums for a SHOP-qualified plan

Employers that meet these criteria may claim up to 50% of premium costs (or 35% for tax-exempt organizations) for two consecutive tax years (IRS: Small Business Health Care Tax Credit).

Why It Matters Before Year-End

• Benefits and compensation planning often happen during open enrollment—making this a good time to reassess whether your plan qualifies.
• If you’ve never claimed the credit and currently offer a qualifying plan, you may be able to file using Form 8941 (IRS Form 8941).
• The credit can offset a meaningful portion of your healthcare costs, helping small businesses stay competitive when recruiting or retaining talent while strengthening their overall employer tax credits strategy.
  

Year-End Actions

• Recalculate FTEs (including part-time staff equivalents) to confirm whether you’re under the limit for employer tax credits.
• Review average wage data to verify you remain below the threshold.
• Evaluate the percentage of premiums paid by the business—if it’s near or above 50%, you might be eligible.
• If you believe you qualified in a prior year but didn’t claim the credit, ask your CPA about filing an amended return.

3. Energy Efficiency Incentives & the Section 179D Deduction

What It Is

Energy-related incentives are often overlooked components of employer tax credits, rewarding businesses that invest in sustainable building improvements. The Section 179D deduction applies to energy-efficient upgrades to commercial property—like lighting, HVAC systems, hot-water systems, or building envelope improvements (IRS: Energy-Efficient Commercial Buildings Deduction).

While technically a deduction, it operates like a credit in practice because it directly reduces taxable income for investments that often align with sustainability goals.

Legislative Context

Under the Inflation Reduction Act of 2022, deduction limits increased significantly. Eligible businesses can now deduct $0.54–$1.13 per sq ft for improvements that reduce energy use by 25–50%, and up to $5.65 per sq ft when prevailing-wage and apprenticeship standards are met (U.S. Department of Energy).

However, the One Big Beautiful Bill Act (OBBBA) passed in 2025 phases out eligibility for property whose construction begins after June 30, 2026—meaning projects launched soon may preserve more favorable treatment. Read more about this in our blog post: How Sustainability Can Lower Your Tax Bill. 

Year-End Actions

• Review planned building upgrades or retrofits that could reduce energy consumption by 25% or more.
• If you own or lease commercial space, discuss whether upcoming improvements might meet the 179D standard.
• Discuss with your CPA whether these improvements fit within your broader employer tax credits strategy.
• Engage an engineer or qualified professional early to certify energy savings (a requirement for the deduction).
• Track installation dates and construction start times carefully—timing may affect eligibility.

Building a Year-End Game Plan for Leveraging Employer Tax Credits

Here’s how to integrate these employer tax credits and related incentives into your broader tax strategy before December 31:

1. Take Inventory
   • Identify any new hires who might meet WOTC criteria.
   • Review employee counts, average wages, and premium contributions for potential health care credit eligibility.
   • Note any building projects or planned energy-efficient purchases.
2. Organize Documentation Early
   • Gather payroll records, benefits contribution data, and certifications.
   • Keep clear evidence for each credit’s eligibility—especially for wage-based credits like WOTC.
3. Review Deadlines and Forms
   • WOTC: Form 8850 due within 28 days of hire (IRS Form 8850).
   • Health Care Credit: claim via Form 8941 (IRS Form 8941).
   • Section 179D: documented through Form 7205 (IRS Form 7205).
4. Coordinate with Your CPA or Advisor
   • Credits like these may interact with other tax provisions, so it’s helpful to confirm treatment and potential carryforward options.
   • Discuss any pending projects or benefits changes now to align with your 2025 filing strategy.
5. Stay Informed
   • Credits and deductions can change as legislation evolves. The IRS frequently updates its pages on WOTC, Health Care Credits, and Energy Incentives.

Common Pitfalls to Avoid

• Missing certification windows: WOTC claims are invalid without timely submission.
• Overlapping wages: You can’t use the same wages for multiple credits unless specifically permitted by law.
• Incomplete records: Without supporting documentation, the IRS may disallow claims.
• Assuming eligibility: Each credit has strict requirements—always confirm the details before filing.
• Waiting too long: Some credits have sunset clauses or limited-year eligibility windows (like the Health Care Credit’s two-year rule).

Final Thoughts

Revisiting employer tax credits before year-end can make a measurable difference for small businesses. Programs like WOTC, the Small Business Health Care Credit, and energy efficiency deductions were designed to reward good hiring, employee support, and responsible investment.

By reviewing your records, gathering documentation, and consulting a CPA familiar with OBBBA-era updates, you can identify opportunities to strengthen your financial position before the new year begins. Even modest credits can reduce your overall tax liability and free up capital for growth, benefits, or reinvestment.

Additional Reading

• IRS – Work Opportunity Tax Credit
• IRS – Small Business Health Care Tax Credit
• IRS – Energy Efficient Commercial Buildings Deduction
• U.S. Chamber of Commerce: Small Business Tax Credits Overview
  

Talk with Our Team

Every business is unique, and so are the credits available to it. If you’d like tailored guidance on which employer tax credits fit your situation, reach out to Beckley & Associates PLLC.

We’ll walk you through current OBBBA-era incentives and help you capture opportunities that align with your goals.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult with your tax advisor regarding your specific situation.