Recent changes to the Work Opportunity Tax Credit (WOTC) could mean increased tax savings for you or your business.
WOTC is a federal tax credit available to employers for hiring individuals from certain targeted groups. WOTC is a dollar-for-dollar credit against federal income tax that is claimed on an individual owner’s tax return or C-corporation tax return. This tax credit puts actual dollars back into the pockets of business owners that can be used to invest back into the business, purchase capital expenditures or, in the case of an individual taxpayer, utilize for personal purposes.
Overview of the WOTC
The WOTC is available to employers who hire those in one or more targeted groups:
- IV-A recipients
- Qualified veterans
- Designated community residents
- Vocational rehabilitation referrals
- Summer youth employees
- Food stamp recipients
- SSI recipients
- Long-term family assistance recipients
In order to qualify for the tax credit, you will have to obtain one of the following items on or before a new employee’s first day: 1) certification from a designated agency that confirms the employee falls into one of the targeted groups or 2) an employee’s signature on Pre-Screening Form 8850. This form is due to the Designated Local Agency (DLA) within 28 days of hiring a new employee.
What aspects of WOTC have changed?
Recently, WOTC was extended and expanded by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The tax credit can now be retroactively applied to wages paid to an employee who begins work before Jan. 1, 2020, and was expanded to include a new target category, the long-term unemployed.
Under the PATH Act, a qualified long-term unemployment recipient is any individual who is certified as being in a period of unemployment which is not less than 27 consecutive weeks and includes a period in which the individual was receiving unemployment compensation. The addition of long-term unemployed to the targeted groups required the WOTC Prescreening Form 8850 to be updated so that employers could request certification for this new group.
In order to alleviate the employer’s burden of implanting the new procedures related to WOTC, the IRS issued Notice 2016-40 to offer additional transitional relief for WOTC certification submissions. Under this Notice, the IRS has extended the deadline to file Form 8850 with the DLA for employees that began work on or after Jan. 1, 2015 and on or before Aug. 31, 2016 to Sept. 28, 2016.
How does the WOTC extension and expansion impact you?
The extension of the WOTC eligibility period to Dec. 31, 2019 gives employers additional opportunities to receive federal tax credits for employees hired between Jan. 1, 2015 and Aug. 31, 2016.
An employer’s existing hiring practices can be easily updated to include the WOTC screening process. You’ll need your new employee to complete a questionnaire either online or over the phone to determine if they are eligible for a WOTC. A quality payroll company will already have this process in place, which alleviates the burden from the employer. If you have an existing process in place to determine if a new employee is WOTC eligible, then you will simply need to update the criteria to include the long-term unemployed.
How can HA&W help?
We welcome any questions you may have about WOTC or your employee’s eligibility. We can assist in reviewing the targeted groups with you and guiding you to a qualified payroll provider to make sure you are set up correctly to capture the WOTC credits.
If you have any questions about how to determine if your existing employees are eligible for WOTC or how to update your hiring processes for new employees to take advantage of the credit, please contact me at firstname.lastname@example.org or (770) 353-3051.
Jessica is a senior manager in the Advisory Business Services group of Habif, Arogeti & Wynne, LLP. She began her career in 2007 with HA&W. During her years with the firm, she has gained extensive experience in taxation for restaurants, retail, hospitality, and tax mitigation. Jessica received her Bachelor of Science in Accounting from Georgia Southern University (2006) and her Masters of Taxation from Georgia State University (2007). She is a member of the AICPA and Georgia Society of CPAs. She serves as Co-Chair of HA&W Women’s Initiatives Committee.