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The Protecting Americans from Tax Hikes Act of 2015 (PATH) was signed by President Obama on Dec. 18, 2015. Included in the many tax breaks and incentives that were "extended" by this bill was the reinstatement of the Work Opportunity Tax Credit (WOTC). The WOTC is a credit to employers who hire certain targeted groups of employees and is based on a percentage of the wages paid to those employees. The PATH Act even added a new category that will be available in 2016.

The WOTC was first authorized in 1996, but was very narrow as to who it applied to. Since that time, the WOTC has expired, been revised and extended on numerous occasions. It has also added several new groups that qualify an employer for tax credits up to $9,600 for each qualified new hire (without being capped). The nine targeted groups include vocational rehabilitation referrals, qualified ex-felons, families receiving benefits under the Temporary Assistance to Needy Families, long-term family assistance recipients, designated community residents, families in the food stamp programs, qualified SSI recipients, qualified summer youth, and qualified veterans. In addition, "qualified long-term unemployment recipients" will be a qualifying group for new hires after Dec. 31, 2015.

The process to determine who qualifies for the tax credits is fairly straightforward, but has stringent timing rules in place. IRS Form 8850 should be completed by every new hire when the offer for employment is made. The completed forms must be submitted to the state workforce agency (SWA) within 28 days of the employee's start date. The SWA processes these forms and upon approval will provide the employer a "certification" of the employees' status to a certain targeted group. The employee must work at least 120 hours to qualify for the credit. The credit percentage increases from 25% to 40% or more if the employee works more than 400 hours. The employer claims the tax credit with the filing of their respective tax return for that year on Form 5884.

The WOTC faced similar expiration in 2014. When the "Extenders Bill" was passed in late 2014, the IRS issued Notice 2015-13 that provided additional time for employers to complete Form 8850 and submit the completed forms to their SWA. It is expected that the IRS will issue a similar rule for the 2015 credit since is originally expired on Dec.31, 2014. It is recommended that employers should begin this process now so that they can submit the completed Form 8850's to the SWA as soon as possible.

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By Matt Munn, CPA