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If you hired new employees in 2014, then you should know that your business may be entitled to substantial tax benefits for doing so. This is because the Work Opportunity Tax Credit (WOTC) has been extended.

The WOTC is a federal tax credit available to employers that hire individuals from eligible targeted groups. These targeted groups have historically faced significant barriers to employment. Congress enacted the WOTC to provide an incentive for employers to hire these individuals. It is significant to note that there is no limit on the number of eligible newly-hired employees for which an employer can claim the WOTC, so the benefits of this tax credit could be enormous for businesses that plan and execute properly.

Targeted Groups
The WOTC is available for newly-hired employees from the following targeted groups: Qualified Veterans, Qualified IV-A Recipient, SNAP (Food Stamp) recipient, Designated Community Resident, Vocational Rehabilitation Referral, Ex-Felon, Supplemental Security Income recipient, Summer Youth Employee, and Long-Term Family Assistance Recipient.

New Law
On December 19, 2014, President Obama signed the Tax Increase Prevention Act of 2014, which extended the WOTC. It also retroactively reauthorized all targeted groups from December 31, 2011 through December 31, 2014.

Transition Relief
The retroactive reinstatement of the WOTC allows employers to go back and claim tax credits for eligible persons hired in 2014. The tax credit application and approval procedures are listed below. In addition to allowing retroactive reinstatement, the IRS even provides transition relief to employers that wish to retroactively claim the tax credits for 2014. This transition relief applies to all targeted groups. An employer can satisfy the application and approval procedures by submitting the completed Form 8850 to the State Workforce Coordinator no later than April 30, 2015.

The tax credits under the WOTC are computed as a percentage of the newly-hired employee’s first-year wages. The permissible amount of tax credits can run as high as $9,600 for hiring certain qualifying veterans. Note that a newly-hired employee must work at least 120 hours in the first year of employment for the employer to be able to claim any tax credits on the new employee’s wages.

  • Qualifying new hires must be from one of the following target groups:
  • Qualified IV-A Recipient
  • Qualified SNAP (food stamp) Recipient
  • Qualified Veteran
  • Vocational Rehabilitation Referral
  • Designated Community Resident
  • Qualified Summer Youth Employee
  • Qualified Ex-Felon
  • Qualified Supplemental Security Income Recipient
  • Long-Term Family Assistance Recipient.
Application Procedure/Approval Method
  • Complete and submit Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit) no more than 28 days after the employee’s first day of work
  • The Form 8850 must be signed by the employee on or before the date of the job offer/first day of work
  • Complete and submit Form 9061 (Individual Characteristics) with the Form 8850 or at a later date
  • Both forms must be submitted to the State Workforce Coordinator (SWC) within 28 calendar days of the employees start date
  • SWC will review the Forms 8850 and 9061 to determine eligibility
  • A certification or denial for the tax credit will be issued by SWC
Eligible Use/Funding Limits
  • Used to offset Federal income tax liability
  • Claimed on Form 5884 or Form 3800, depending on structure
  • Unused credits may be carried back one year and carried forward 20 years
  • No limit on the number of qualifying new hires per company or total  amount of tax credits distributed

To boost your business’s profitability by maximizing its benefits under the WOTC, contact Paul Truber or Daniel Willingham or your local UHY Advisors professional.