The WOTC was first created in 1996 and has been extended, expired and modified many times over the years. The most recent update was included in the Protecting American from Tax Hikes Act of 2015 (PATH Act). This complicated history makes applying for the credit a little onerous, and many businesses have either outsourced the application process or skipped it altogether. However, the WOTC might be worth a second look if you’re looking to reduce the cost of hiring new employees.
The WOTC allows for-profit employers, including flow-through entities, to claim a credit against their federal income tax liabilities for hiring members of certain eligible groups. For most, the credit is 40 percent of the first $6,000 in wages paid during the worker’s first year of employment, or $2,400. The new hire must not be a prior employee, the employer’s dependent or related to employer, and he or she must work at least 120 hours.
The credit is available to employers that hire workers included in the following target groups.
TANF recipients. Any short-term recipient of Temporary Assistance to Needy Families (TANF). The individual qualifies if he or she received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.
Veterans. Hiring veterans will qualify for the WOTC if they are :
In addition, to be considered a qualified veteran for this purpose, the individual must meet the following two standards:
Ex-felons. Hiring ex-felons will qualify for the WOTC if they have been convicted of a felony under any statute of the US or any state and if they have a hire date that is not more than one year after the last date on which the individual was convicted or released from prison.
Other qualified individuals. Other groups targeted by the WOTC include Qualified Designated Community Resident, Qualified Vocational Rehabilitation Referral, Qualified Summer Youth Employee, Qualified Supplemental Security Income Recipient and Qualified Long-Term TANF Recipient.
The PATH Act added a new target group whose hiring will qualify for the WOTC – qualified long-term unemployment recipients. This provision is effective January 1, 2016. The PATH Act also extended the entire WOTC through December 31, 2019.
Under the PATH Act, a qualified long-term unemployment recipient is any individual who is certified by a designated local agency (DLA) 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 under state or federal law.
The IRS recently published a notice to provide transition relief for complying with the requirements for attaining certification for the WOTC. The transition relief extends time for filing the required IRS Form 8850 with the DLA as follows.
For any new hire on or after September 1, 2016, who qualifies as one of the targeted groups, the transitional relief does not apply. The rules for complying are as follows.
In addition, there is another certification form that must be completed and sent to the DLA in conjunction with Form 8850 – either Employment and Training Administration Form 9062 or 9061.
The form to claim the credit is Form 5884. However, certification notification has to be received from the DLA before the credit can be claimed.
This is just an overview of the WOTC rules, and they are a little complicated. If you think your business might qualify and would like to learn more, please contact your WK advisor at (573) 442-6171 or (573) 635-6196.