The Business Tax Credit That Even Your CPA Isn’t Aware Of

It is estimated that billions of dollars in WOTC Tax Credits aren’t being claimed by businesses, and that 1 in every 5 people hired in the US are potentially eligible for this tax credit.  The average available tax credit is $6,000 per qualifying employee, but can be as high as $9,600 for disabled veterans, although the average benefit captured by employers is probably closer to $2,000 per eligible employee.

WOTC is the acronym for “Worker Opportunity Tax Credits.”  This tax credit started out as the “Welfare to Work Tax Credit,” and was expanded to following groups:

1. Supplemental Nutritional Assistance Program (SNAP) Recipients, or Food Stamps;
2. Unemployed Veterans (Including Disabled Veterans;)
3. Temporary Assistance for Needy Families (TANF) Recipients;
4. Designated Community Residents Living in Empowerment Zones, or Rural Renewal Counties who are 18 to 39 years old;
5. Ex-Felons;
6. Supplemental Security Income (SSI) Recipients;
7. Summer Youth Employees Living in Empowerment Zones; and
8. The Long-Term Unemployed.

This is how the program works.  You have a new employee complete IRS Form 8850 after they are hired.  If they check off that they fall in one of the above categories, you have 28 days to contact the Department of Labor, who verifies the new employee’s eligibility.  You then submit a payroll report to the Department of Labor and you get a credit based on the number of hours the employee works up to a certain amount.  At the end of the year, you request a credit certificate from the Department of Labor that you give to your tax preparer.  You’ll need IRS Form 3800 with the instructions, or Form 5884 with the instructions (if you are a non-profit) to get the tax credit.

The amount of the tax credit varies by group.  The tax credit varies by group.  The tax credit for most groups is 40% of qualified first year wages up to $6,000, if the employee is retained for at least 400 hours.  If the employee works for less than 400 hours, but at least 120 hours, the company receives a 25% tax credit on qualified wages up to $6,000.  The tax credit for long-term family assistance recipients is 40% of the first $10,000 and 50% of the second year’s qualified wages up to $10,000, if the employee is retained for 180 days or 400 hours.  In certain circumstances, you may be able to claim either 40% of a $6,000 tax credit or 40% of a $1,000 tax credit.  For veterans with a service connected disability unemployed for at least 6 months with the qualified wages cap increased to $24,000 the maximum tax credit increased to $9,600.  Many states have credits that piggyback WOTC tax credits.

WOTC were extended through 2019 as part of legislation signed on Dec. 18, 2015, but may be on the chopping block if tax reform passes this year.

If you are in the construction, food & beverage, healthcare, hospitality, manufacturing, retail, or staffing industries in particular, and are not taking advantage of WOTC tax credits contact me at jjtalericojr@gmail.com and I’d be happy to send you more information on WOTC tax credits.

 

Appendix A: Detailed Certification Criteria For The WOTC Target Groups:

1. Veterans Target Groups

A new hire qualifies for a veterans target group, if the individual is:

• A veteran who is a member of a family that received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date;

OR

• A disabled veteran entitled to compensation for a service-connected disability, who has been:
  • Hired within 1 year of discharge or release from active duty, OR
  • Unemployed for at least 6 months in the year ending on the hiring date;

OR

• A veteran who has been unemployed for:
  • At least 4 weeks in the year ending on the hiring date; OR
  • At least 6 months in the year ending on the hiring date.

Please note that to have veteran’s status and be eligible for WOTC, an individual must:

• Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days, OR have been discharged or released from active duty for a service-connected disability; AND
• Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.

2. Long-Term Temporary Assistance for Needy Families (TANF) Recipient

To qualify for this target group, a new hire must be a member of a family that meets one of the following circumstances:

• Has received TANF benefits for at least 18 consecutive months ending on the hiring date; OR
• Has received TANF benefits for at least 18 consecutive or non-consecutive months after August 5, 1997, AND has a hiring date that is not more than 2 years after the end of the earliest 18-month period after August 5, 1997; OR
• Has stopped being eligible for TANF payments during the past 2 years, because a federal or state law limited the maximum time those payments could be made.

3. Short-Term TANF Recipient

A new hire qualifies for this target group if the individual is a member of a family that received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.

4. Supplemental Nutrition Assistance Program (Food Stamp) Recipient

A new hire qualifies for this target group, if the individual is:

• Age 18 to 39 years old, AND
• A member of a family that received Supplemental Nutrition Assistance Program (SNAP) benefits for:
  • The 6 months ending on the hiring date, OR
  • At least 3 of the 5 months ending on the hiring date.

5. Designated Community Resident (DCR)

A new hire meets the criteria for this target group, if the individual:

• Is age 18 to 39 years old, AND
• Resides within one of the federally designated:
  • Rural Renewal Counties (RRCs), OR
  • Empowerment Zones (EZs).

6. Vocational Rehabilitation (VR) Referred Individual

A new hire is a member of this target group if the individual with a disability has completed, or is completing, rehabilitative services provided by:

• A state-certified agency, OR
• An Employment Network under the Ticket to Work program, OR
• The U.S. Department of Veteran Affairs.

7. Ex-Felon

A new hire meets the criteria for this target group, if the individual:

• Has been convicted of a felony; AND
• Has a hiring date that is not more than 1 year after the conviction or release from prison.

8. Supplemental Security Income (SSI) Recipient

A new hire meets the criteria for this target group if the individual is a recipient of SSI benefits for any month that ends during the 60-day period ending on the hire date.

9. Summer Youth Employee

A new hire is a member of this target group, if the individual:

• Is a 16 or 17 year old youth, AND
• Works for the employer between May 1 and September 15; AND
• Resides in an Empowerment Zone (EZ).

1. Qualified Long-Term Unemployment Recipient

An individual hired after December 31, 2015 who is in a period of unemployment that:

• Is not less than 27 consecutive weeks, and
• Includes a period (which may be less than 27 consecutive weeks) in which the individual received unemployment compensation under state or federal law.