The Work Opportunity Tax Credit (WOTC) provides income tax incentives to any business for hiring workers that the U.S. Department of Labor has determined to have significant barriers to employment. ‘
Individual hires who make an employer eligible to capture the credit include veterans, those on temporary financial assistance, and residents of certain geographic zones (See the full and updated list here). This federal program is available to all income tax-paying employers in all 50 states, Puerto Rico and the U.S. Virgin Islands, meaning employers have equal access to tax credits, regardless of location.
WOTC offers federal tax credits ranging from $2,400 to $9,600 per eligible employee.
Credits can be carried backward or forward
Employers are required to identify new hires as potentially eligible for the credit by having the individual fill out and sign the IRS form 8850, or Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form provides a means for an individual to identify themselves as belonging to one of the available WOTC target groups.
This document must also be signed by the employer or their agent. Additionally, the employer must fill out the U.S. Department of Labor form 9061, or Individual Characteristics Form (ICF). Both forms must be provided to the State Workforce Agency within 28 days of the individual’s hire date to be considered for certification.
WOTC credits can be carried backwards for two years and forwards for 20 years, and can be used to offset Alternative Minimum Tax liabilities. Through the WOTC program, the government incentivizes employers to help move people from public assistance to employment rolls. Companies benefit from the program through reduced tax liabilities and an offset to the cost of hiring.
Through its history, as a government incentive that requires legislative authority, the WOTC program has experienced periods of hiatus – times in which the legislative authority of the program lapses. From January 1, 2014, through December 19, 2014, the program was, indeed, in such a hiatus period that ended when the President signed into law the Tax Increase Prevention Act of 2014, which extended WOTC retroactively from Jan 1, 2014 through December 31, 2014.
“Transition relief” for employers
Recently, the IRS issued notice 2015-13 that offers WOTC hiatus “transition relief” for employers. The notice states:
Because the Act extended the WOTC retroactively for 2014 for members of targeted groups, employers need additional time to comply with the requirements of § 51(d)(13)(A). Accordingly, a taxable employer that hired a member of a targeted group (as defined in §§ 51(d)(2) through (10)), or a qualified tax-exempt organization that hired a qualified veteran described in § 51(d)(3), on or after January 1, 2014, and before January 1, 2015, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the appropriate DLA to request certification not later than April 30, 2015.”
Taking into account that 2014 WOTC hiatus had detrimental effects on employers’ tax planning and business strategies, the IRS is now forgoing the normal 28-day filing deadline for WOTC so as to allow employers to capture any missed tax credits that may have gone unclaimed while the future of the WOTC program was uncertain.
WOTC certification requests for all hires made during the transition period can be filed until April 30, 2015. If a company had not previously participated in the WOTC program, this is an unprecedented chance to recapture more than a year’s worth of missed credit opportunities, amounting to tax savings of up to $9,600 per eligible hire. If a company did participate in 2014, but missed individual screenings, these credits can now be captured as if completed on time.
How to maximize results
Employers who wish to take advantage of this rare “retro-WOTC” opportunity should seek to maximize results by:
- Identifying all hires who were not screened during the dates of hiatus period – Jan 1, 2014 to Jan 31, 2014 – and have them complete a new 8850 or WOTC screening.
- Identifying all individuals who, if screened during the hiatus period, did not fully complete or sign their 8850 or electronic screening.
- Offering eSignature options in screening workflows to maximize efficiency, effectiveness and, eligibility determinations
- Meeting their employees where they are by offering retro-screenings on paper, integrated into onboarding or applicant tracking workflows, or by phone-in (IVR) methods.
- Filing all new and newly complete WOTC forms with the State Workforce Agency by April 30, 2015. Any forms not so filed will be denied certification by the SWA.
- Tracking and reporting on hours and wages of potentially eligible hires in the hiatus period to ensure proper credit identification and capture, and estimated tax payments.
“A worthwhile and effective program”
The Work Opportunity Tax Credit is a worthwhile and effective program that helps transition individuals facing barriers to hire from unemployment to employment rolls. Any company in the United States is eligible to capture and claim the credit against their income tax liabilities by hiring individuals who fall into specific target groups, and submitting the appropriate forms to their State Workforce Agency.
While the program can and does enter hiatus periods pending legislative authority, there is currently an opportunity to capture, or recapture, potentially missed credit opportunities from the past year.