When your business looks to hire employees, you may inadvertently overlook some specific groups who sometimes face barriers to employment. Enacted in 2015, the Protecting Americans from Tax Hikes Act (PATH Act) includes a provision that provides some incentives for your business to hire from these targeted groups of people. The Work Opportunity Tax Credit (WOTC) is a Federal tax credit for which your company may qualify.
Benefits to Your Company
Congress designed this tax credit to help qualified people get hired and to help encourage companies to consider them for positions in their organizations. If you hire eligible employees who meet the requirements, the WOTC can do the following for your company:
- Reduce your cost of doing business
- Reduce your company’s federal income tax liability by as much as $9,600 per eligible employee you hire
- Provide the WOTC benefits for an unlimited number of qualifying employees
- Some tax-exempt organizations can also take advantage of this credit.
Who Qualifies for this Credit?
Individuals from these groups may qualify for the WOTC:
- Temporary Assistance for Needy Families (TANF) Recipients – The TANF program provides temporary financial assistance for pregnant women and families with one or more dependent children.
- Supplemental Nutrition Assistance Program (SNAP) – food stamp recipients
- Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
- Vocational Rehabilitation Referral
- Supplemental Security Income Recipients
- Summer Youth Employees living in Empowerment Zones
- Qualified Long-Term Unemployment Recipients – this covers individuals who have been unemployed for 27 consecutive weeks or longer
The U.S. Department of Labor provides more detail about each of these groups to help you understand who among your prospective employees might qualify for this credit. You can find this information at https://www.doleta.gov/business/incentives/opptax/eligible.cfm
Rural Renewal Counties in Iowa
The list above mentions Designates Community Residents in Rural Renewal Counties. The IRS defines a rural renewal county as a county in a rural area that lost population during the 5-year periods 1990 through 1994 and 1995 through 1999. Iowa’s rural renewal counties include:
The counties of Adair, Adams, Appanoose, Audubon, Butler, Calhoun, Cass, Cherokee, Clay, Clayton, Emmet, Floyd, Franklin, Fremont, Hancock, Humboldt, Ida, Keokuk, Kossuth, Montgomery, Osceola, Palo Alto, Pocahontas, Poweshiek, Sac, Taylor, Union, Wayne, Winnebago, and Worth.
You can find more IRS detail here: https://www.irs.gov/instructions/i8850/ch02.html#d0e419
What’s It Worth to You?
Your company can earn a tax credit of $1,200 -$9,600 per eligible employee, depending on the employee hired and the number of hours that employee works in the first year. Employees must work at least 120 hours in the first year to qualify for this credit. You can learn more about the maximum tax credit for each target group at this link: https://www.doleta.gov/business/incentives/opptax/
How to Apply for the Credit
The Department of Labor summarizes the application process in these five steps:
- Complete IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) by the day the job offer is made.
- Complete ETA Form 9061, or complete ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a State
- Workforce Agency, Vocational Rehabilitation agency, or another participating agency. The DOL website identifies these state agencies here: https://www.doleta.gov/business/incentives/opptax/State_Contacts.cfm
- Submit the completed and signed IRS and ETA forms to your State Workforce Agency. You must submit forms within 28 calendar days of the employee’s start date.
- Wait for a final determination from your State Workforce Agency. The determination will indicate whether the employee is certified as meeting the eligibility for one of the WOTC target groups.
- File for the tax credit with the Internal Revenue Service after the State Workforce Agency certifies the target group employee.
The IRS has detailed information on eligibility and benefits from the WOTC. For more information, take a look at https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit-1.
TD&T Can Help
Many companies miss out on this tax credit, even if some of the employees they have already hired may have qualified for the credit. If you are considering hiring employees who may come from the target groups or have already hired them and would like to discuss the WOTC applicability for those individuals, please contact your TD&T tax professionals. We will be more than happy to assist.