IRS Makes Update to Work Opportunity Tax Credit Guidance

Enacted in 1996 to replace the Targeted Jobs Tax Credit, the Work Opportunity Tax Credit (WOTC) is designed to incentivize the employment of workers in certain categories. Companies have been using the WOTC to help reduce their Federal income tax liability by as much as $9,600 per qualifying hire. The WOTC has been utilized heavily by staffing companies, and the updated guidance increases focus on those organizations to ensure the credit is being used properly.

What has changed?

Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, must be completed by the applicant and the employer on or before the day a job offer is made to satisfy the requirement to pre-screen a job applicant. Once Form 8850 is completed the employer must request certification by submitting the form to the appropriate state workforce agency (SWA) no later than 28 days after the employee begins work. Further details and requirements on properly filing Form 8850 can be found here.

The latest update from the IRS places a heavy emphasis on adherence to the rules for filing Form 8850 with an SWA for a successful claim towards the credit.

Have the categories for eligible workers changed?

There are currently 10 designated categories for workers:

• Qualified IV-A Temporary Assistance for Needy Families recipients;
• Certain veterans, including unemployed or disabled veterans;
• The formerly incarcerated or those previously convicted of a felony;
• Designated community residents living in Empowerment Zones or Rural Renewal Counties;
• Vocational rehabilitation referrals;
• Summer youth employees living in Empowerment Zones;
• Supplemental Nutrition Assistance Program (SNAP) / food stamp recipients;
• Supplemental Security Income recipients;
• Long-term family assistance recipients; and
• Qualified long-term unemployment recipients.

Some employees do not qualify the employer for the WOTC; including relatives and dependents of the employer/owner (sons, daughters, stepchildren, spouses, parents, siblings, step-siblings, nephews, nieces, uncles aunts, cousins or in-laws); former employees (regardless of how long it has been since he/she last worked for the employer); majority owners of the business.

We have been guiding our clients through the WOTC utilization process since the credit was first introduced and have monitored all changes it has seen. It is especially common with our staffing clients and we have created an efficient process for helping clients apply this useful tax strategy.

09/30/2022