Congress has not extended the Work Opportunity Tax Credits (WOTC) to new hires in 2015. However, because Congress has historically extended these tax credits, we encourage employers to continue to submit the paperwork for certification for each new hire.
Companies have missed out on possible Work Opportunity Tax Credits by not continuing to file the proper paperwork when the credit was not reinstated until later in the tax year. This is why it is important that employers continue or start requiring new employees to complete Form 8850 as part of the new hire package.
This Form 8850 is required to be filed no later than 28 days after the date the employee starts employment in order to qualify for the tax credit.
The Work Opportunity Tax Credit is a federal tax credit designed to encourage employers to employ people from different targeted groups. WOTC applies only to new employees. The employer is eligible for the credit only for qualified wages paid to members of a targeted groups. Those groups are:
• TANF recipients;
• Unemployed veterans;
• Food stamp recipients;
• Supplemental Security Income recipients;
• Vocational rehabilitation referrals;
• Summer youth employees; and
• Long-Term Family Assistance Recipients (LTFA).
The Work Opportunity Tax Credit can reduce an employer’s income tax liability by as much as $9,600 per qualified employee depending on the targeted group and other factors. The tax credit for eligible first-year employees is 25 percent of the first $6,000 in wages for those employed at least 120 hours (the maximum credit is $1,500) and 40 percent of the first $6,000 in wages for those employed at least 400 hours (the maximum credit being $2,400).
Employees that are recipients of the Long-Term Family Assistance program (LTFA) are eligible for credits for the first two years of employment. The wages are capped at $10,000 and the maximum credit is $9,000 over two years. Each employee must be certified by the state in order to qualify for the credit.
There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.
There are companies that will help with the administrative part of filing the Form 8850 and the computation of the tax credits. These companies typically do not charge a fee until the employer has received the certificate back from the state confirming the employee is a member of one of the targeted groups. Some of those companies are Maximus, Proliant, Taxcredit.com and AAP.
For additional information about WOTC or how to apply, please contact Sparkmon & Associates, CPAs.