Running a small business in Washington State comes with its share of challenges — rising operating costs, workforce shortages, and compliance hurdles, just to name a few. But one area where many small and mid-sized businesses (SMBs) miss out is in leveraging tax credits. These incentives can translate into significant savings, but many business owners either aren’t aware they exist or don’t know how to claim them.
Here’s a rundown of some of the most valuable federal and state-level tax credits that Washington small businesses can take advantage of—plus tips on how to actually put them to use.
1. Work Opportunity Tax Credit (WOTC)
What it is:
The WOTC is a federal tax credit for businesses that hire individuals from certain targeted groups who have consistently faced barriers to employment. This includes veterans, ex-felons, SNAP recipients, long-term unemployed, and others.
How it works:
If you hire an eligible employee and they work at least 120 hours, you can claim a credit ranging from $1,200 to $9,600 per hire, depending on their eligibility category and hours worked.
How to claim it:
You must file IRS Form 8850 and submit it to the Washington State Employment Security Department within 28 days of the employee’s start date. This is a tight deadline, so flag this process early in your hiring workflow.
2. Research & Development (R&D) Tax Credit
What it is:
If your business is investing in new or improved products, processes, or software, you might qualify for the R&D Tax Credit—even if you’re not in a traditional tech sector.
How it works:
This credit can be claimed at both the federal and state level in Washington. Eligible expenses include wages, contractor payments, and supplies used in qualified R&D activities. Startups may even be able to use it to offset payroll taxes.
How to claim it:
At the federal level, use IRS Form 6765. Washington State also has a version through its Business and Occupation (B&O) tax credit program for qualified R&D spending.
Tip: Work with a CPA who can help conduct a formal R&D study to support your claim and withstand IRS scrutiny.
3. Energy Efficiency and Green Business Credits
What it is:
If you’re investing in energy-saving upgrades—like installing solar panels, switching to high-efficiency HVAC systems, or using electric vehicles—you may be eligible for both federal tax credits and state-level incentives.
How it works:
Federal incentives under the Inflation Reduction Act now provide significant tax credits for clean energy investments, and Washington offers programs such as sales tax exemptions on specific energy-efficient equipment or green building certifications.
How to claim it:
Credits vary by investment. Solar energy installations often use IRS Form 5695. State-level incentives may require working with the Department of Revenue or Department of Commerce, depending on the program.
4. Paid Family and Medical Leave Tax Incentives
What it is:
Washington’s Paid Family and Medical Leave (PFML) program is funded via payroll taxes, but employers with fewer than 150 employees may qualify for assistance grants of up to $3,000 per employee.
How it works:
These grants help cover training, temporary worker costs, or overtime while an employee is on PFML.
How to claim it:
Apply through the Washington Employment Security Department. You must apply within 90 days of the employee’s leave ending.
5. Employee Retention Credit (ERC) (Still retroactively available in some cases)
What it is:
Although the program ended in 2021, many small businesses in Washington may still be able to file amended returns and retroactively claim the ERC, especially if they faced partial shutdowns or revenue decline during COVID-19.
How it works:
Eligible businesses could claim up to $26,000 per employee, depending on which quarters they qualify for.
How to claim it:
File an amended Form 941-X for the relevant quarter(s). Be cautious here—many third-party ERC mills overpromised refunds and triggered IRS audits. Work with a reputable CPA to make sure you qualify.
Tips for Utilizing Tax Credits Effectively
- Don’t assume you’re too small.
Many credits are designed with small businesses in mind. A company with fewer than 50 employees may qualify for multiple programs. - Keep good records.
Documentation is critical. Payroll logs, project timelines, and receipts make it easier to claim credits and protect your business during an audit. - Time matters.
Some credits, like the WOTC and PFML assistance grants, have strict filing deadlines. Build these into your operational processes. - Talk to your CPA regularly.
Don’t just wait until tax season. A proactive tax strategy can uncover credits you’re eligible for before they expire.
Let’s Talk Tax Strategy
At Huddleston Tax CPAs, we specialize in helping Washington SMBs take full advantage of available tax credits. We’ll help identify what credits you qualify for, gather the necessary documentation, and ensure your claims are accurate and compliant.
If you think you might be leaving money on the table—or if you’re just unsure where to start—schedule a consultation with us. A well-timed tax credit could be the financial cushion your business needs to grow with confidence.