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WOTC

WOTC concept

The WOTC is a Win-Win For Employees and Businesses

By | Tax Credits, Uncategorized | No Comments

Today’s businesses always seem to be facing complex tax issues as they try to keep pace with changing regulations. As a result, several credits and deductions that would benefit the company’s tax bill may be overlooked. The Work Opportunity Tax Credit (WOTC) is one such program that your business can qualify for. 

What is the WOTC?

The WOTC was enacted as a federal tax incentive program in 2015 to give employers tax credits to hire candidates with special employment needs. Initially signed in 1996, the act has been extended several times and is authorized until December 31, 2020.

The program is jointly administered by the Department of Labor and the Internal Revenue Service (IRS). State agencies oversee the certification progress to ensure that employers hire candidates who meet the WOTC tax credit criteria.

The Department of Labor has recently awarded additional WOTC grants to states experiencing backlogs in the program. 

WOTC grants employers a tax credit between $1,200 and $9,600 per worker from one of the targeted groups. These include veterans, ex-felons, vocational rehabilitation referrals, summer youth employees, as well as those receiving Temporary Assistance for Needy Families (TANF), and government assistance recipients. 

The reasoning behind this tax incentive is to assist persons who are often left behind job-wise. Employers who may hesitate to hire from this group can benefit from tax incentives to include them in their recruitment plans. 

Credit Requirements and Amounts

How much a company can receive in tax credits is largely dependent on which classification the worker is in, as well as their total earnings and hours worked. This credit can be claimed for two years for each eligible employee as follows:

  • Hired recipients enable employers to take the tax credit for up to two years. The first year’s tax credit claimed is 40%, up to $6,000 of the first year’s wages, once the employee has worked 400 hours. If the employee has worked between 120 and 400 hours, a 25% tax credit is taken. An exception to this is that long-term family assistance recipients enable employers to take 40% of qualified wages up to $10,000 and 50% of second-year wages up to $10,000. 
  • Employment of long-term family assistance recipients allows a 40% credit of the first year with qualified wages up to $10,000 and 50% the second year. 

IRS rules state that the WOTC must be applied against a tax liability. As in the case of general business credits, unused credit can be carried back one year and carried forward for 20 years. 

Applying For The WOTC

Businesses applying for the WOTC must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” on or before the applicant’s first day on the job.  Form 9061, The “Individual Characteristics Form,” must also be completed by the employer upon hiring the job candidate. Additional documentation may also be necessary to prove the applicant is part of a target group.

The forms are mailed to the state’s WOTC coordinator within 28 days of the employee’s first day on the job.  Once the state verifies the employee is WOTC-eligible, the company can take the appropriate tax credits. 

Employers can then claim the credit on Form 3800 against their income taxes, as detailed by the IRS. 

Incentax can assist your business in identifying and maximizing state and federal tax credits through a streamlined process. Our team of experts evaluates programs and incentives the business is eligible for to maximize returns. Contact us to start taking advantage of tax credits to increase your company’s bottom line. 

hiring manager explores WOTC

Does My Business Qualify for the Work Opportunity Tax Credit?

By | Tax, Tax Credits, Uncategorized | No Comments

The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to benefit businesses that hire individuals who are in “targeted groups” that have historically found it difficult to obtain employment. The WOTC benefits both employers and employees as it helps people in difficult circumstances find jobs. As an employer, you can hire as many qualified employees as you want. The IRS and Department of Labor have complete information about the WOTC.

Obtaining Certification For a Work Opportunity Tax Credit

Pre-Screening

Before you can claim this tax credit, you must obtain certification that the person you’ve hired is a member of one of the targeted groups listed below. The first step is to file Form 8850, a pre-screening form within 28 days of the eligible employee starting work.

Limitations on Credits

The amount of the credit is limited to business income tax liability or the amount of social security tax owed.

Claiming the Credit

Depending on your status as a taxable employer, tax-exempt employer, or tax-exempt organization, you may need to fill out Form 5884 as well as Form 3800, which is for General Business Credit.

What are the Targeted Groups?

The Internal Revenue Service provides guidelines regarding who qualified as a member of a targeted group. For you to be eligible for this tax credit, you’ll have to hire people from one or more of these groups.

Long-Term Unemployed

A qualified long-term unemployment recipient is someone who has been unemployed for at least 27 consecutive weeks. To qualify, they must have received unemployment benefits for at least part of this period.

Ex-Felon

A qualified ex-felon is someone who is hired within a year of being convicted of a felony or released from prison after serving time for a felony.

Recipient of Long-Term Family Assistance

A long-term family assistance recipient is a member of a family who fits into one of several categories. They must have received assistance under an IV-A program for at least the last 18 months; for 18 months beginning after 8/5/97, or they are no longer eligible for this assistance because a state or federal law limited the maximum time they could receive these payments. For the latter, cessation of payments must have been within the last 2 years.

Designated Community Resident

A Designated Community Resident (DCR) must be between the ages of 18 and 40, reside in an empowerment community, an enterprise community, or a renewal community. These are all federally designated locations with high levels of poverty and economic distress. They must remain in one of these areas after being hired.

Supplemental Security Income Recipient

A qualified Supplemental Security Income (SSI) Recipient is someone who has received SSI benefits within 60 days of being hired.

Vocational Rehabilitation Referral

To qualify as a vocational rehabilitation referral, someone must have a physical or mental disability and presently or previously receiving services from a Department of Veteran’s Affairs program, an Employment Network Plan under the Ticket to Work program or a state plan approved under the Rehabilitation Act of 1973.

Supplemental Nutrition Assistance Program (SNAP) Recipient

Qualified SNAP recipients are between the ages of 18 and 39. They or a member of their family must have received SNAP benefits for 6 months or for a minimum of 3 of the last 5 months.

Summer Youth Employee

A qualified summer youth employee must be at least 16 and under 18, employed only between May 1 and September 15. They must also reside in an Empowerment Zone, Renewal Community, or a Renewal Community.

The WOTC Can Help Your Business Save on Taxes

The WOTC can help businesses save money on taxes while also providing jobs to people in targeted groups. If you want to claim this credit, make sure you hire employees who qualify. If you need help understanding the WOTC or any other tax credits that could benefit your business, you may want to consult with a professional.

The tax credit experts at Incentax help businesses take advantage of all possible tax credits. To learn more about our services, contact us.

tax credits for non-profits

$9,600 in Payroll Tax Relief for Non-Profits with This WOTC Program

By | Tax Credits | No Comments

Do you know about Internal Revenue Service Forms 8850, 5584, and 5884C? If not, the odds are that your organization has been missing out on thousands of dollars in tax credit. Each year, employers claim about $1 billion in tax credits under the Work Opportunity Tax Credit (WOTC) program. The great news is that your organization, whether it’s for-profit or non-profit, can be eligible for the WOTC.

Get WOTC-Qualified Groups on Board to Qualify 

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain individuals from certain target groups with significant barriers to employment. To be eligible for the WOTC, your company must employ individuals from the following target groups:

  • Veterans
  • Food stamp recipients
  • People with a felony on their record
  • Long-term unemployed
  • Temporary Assistance for Needy Families recipients
  • Vocational Rehabilitation Referrals
  • Designated Community Residents
  • Supplementary Nutrition Assistance Program recipients
  • Supplemental Security Income recipients
  • Summer Youth employees (living in empowerment zones)

A great way to pre-screen candidates to see if they are WOTC-eligible is to include page one of the IRS Form 8850 in your job application process. Once the successful candidates join your company, you should review the completed 8850 pre-screening form to determine if the new hires belong to any of the WOTC-eligible target groups.

Complete Minimal Paperwork to Claim WOTC Benefits 

As an employer, you make the hiring decision and complete minimal paperwork to apply for the credit. You are required to complete the IRS Form 8850, Prerecorded Notice and Certification Request for the WOTC. You’re also required to file either Form 5584 (for-profit) or Form 5884-C (non-profit). Another form that you should complete is the ETA Form 9061.

After completing and signing these forms, submit them to your local State Workforce Agency (SWA). These forms should be submitted within 28 days of the new hires’ start date. You can then wait for SWA to make the final determination, which will indicate whether the new hires are certified as WOTC-eligible for any of the target groups. After the new hires are certified, you can file for the tax credit with the IRS.  

Earn Between $1,200 and $9,600 per Employee

Depending on the new employees’ target group and the number of hours they’ve worked in the first year, you can earn a tax credit of between $1,200 and $9,600 per employee. Your new employees must have worked at your company for over 120 hours in the first year for your company to receive the tax credit. Also, there’s no limit on the number of qualified hires you can claim.

If your new hire is a long-term TANF applicant, you may claim a tax credit equal to 40% of the new employee’s first-year wages, up to the maximum tax credit, if the new employee works over 400 hours. In the second year, you can claim a tax credit equal to 50% of the second-year wages.

If your new hire is classified under other WOTC-eligible target groups, you may claim a tax credit equal to 25% of the employee’s first-year wages, up to the maximum tax credit. If the employee works over 400 hours, you may claim a tax credit equal to 40% of the employee’s first-year wages, up to the maximum tax credit.  

Receive Your Tax Credits Hassle-Free with Incentax

To get the maximum tax credits that you deserve without any of the stress involved in the claim process, you’ll need an experienced and dependable expert by your side. Since our founding in 2011, we’ve been offering a diverse range of tax credit opportunities that benefit companies in various fields and industries. We’ve assisted hundreds of companies qualify for federal and state tax credits. Contact us today to find out how we can help your organization.