Employers can get credit where credit is due.
The Work Opportunity Tax Credit is a valuable and beneficial tool for employers to receive a tax credit for hiring certain workers who face significant barriers to employment.
The Work Opportunity Tax Credit generally is based on wages paid to eligible employees during their first year of employment. The credit is available for workers who fall under 10 categories:
- Recipients of TANF (Temporary Assistance for Needy Families);
- Unemployed veterans, including disabled veterans;
- Residents living in Empowerment Zones or Rural Renewal Counties;
- Vocational rehabilitation referrals;
- Summer youth employees living in Empowerment Zones;
- Food stamp (SNAP) recipients;
- Supplemental Security Income (SSI) recipients;
- Long-term family assistance recipients; and
- Qualified long-term unemployment recipients (those who have been unemployed for at least 27 weeks and received state or federal unemployment benefits during part or all of that time).
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, with the maximum credit being $1,500. The credit is 40 percent of the first $6,000 in wages for those employed at least 400 hours, with the maximum credit being $2,400.
Employees that are recipients of the Long-Term Family Assistance program are eligible for the WOTC for the first two years of emplyoment. 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.
In order to qualify for the credit, an employer must first request certification by filing IRS Form 8850 within 28 days after the eligible employee begins work. The credit is calculated and claimed on the income tax return as part of the general business credit.
There are companies that will help with the administrative part of filing Form 8850 and the computation of 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.
As you know, we work throughout the year developing strategies to help you maximize your earnings through aggressive tax planning. If you are interested in learning more about any of these credits, please give us a call.