The federal government offers certain small business incentives for hiring at-risk employees in hopes of giving those workers a more solid footing in pursuing careers. One of those tax credits – the Work Opportunity Tax Credit – is aimed specifically at employees from the following targeted groups:
- Long-term family assistance recipients;
- Qualified recipient of Temporary Assistance for Needy Families;
- Qualified veterans;
- Qualified ex-felons;
- Designated community residents;
- Vocational rehabilitation referrals;
- Summer youth employees;
- Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipients;
- SSI recipients; or
- Qualified long-term unemployment recipients.
Wages would qualify for the WOTC if the employee
- Worked for the business for at least 120 hours;
- Had not previously worked for the company;
- Is not a dependent of the owner/operator;
- Is not related to the owner/operator;
- Earned at least 50 percent of the wages from that business.
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.
Employers need to keep accurate records of payroll – including the name, address, hire date of the employee, the number of hours worked and the gross wages earned in the calendar year for which the tax credit will be applied.
The U.S. Department of Labor recently released newly revised forms to be completed by both the business owner (ETA Form 9061) and the employee (Form 8850). The current Form 9061 should have an expiration date of January 2020 and the Form 8850 should contain a revision date of March 2016. All other forms should be discarded.
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.
Please let us know if you have any questions or think you may have employees whose wages would qualify for the Work Opportunity Tax Credit.