Work Opportunity Tax Credit: Employers May Be Eligible To Earn A Federal Income Tax Credit Incentive

TL;DR: In mid-September, the IRS released some updated information on the Work Opportunity Tax Credit (WOTC), a one-time federal tax credit available to employers for hiring and employing individuals from certain targeted groups who have faced significant barriers to employment. This guide explains who qualifies, the rules that apply, and how to apply them to your situation.

In mid-September, the IRS released some updated information on the Work Opportunity Tax Credit (WOTC), a one-time federal tax credit available to employers for hiring and employing individuals from certain targeted groups who have faced significant barriers to employment. Employers who are facing a tight job market are looking to the WOTC for some help by completing a pre-screening notice and requesting the certification request alongside job applicants.

How Does The Work Opportunity Tax Credit Program Actually Work?

Taxable employers and qualified tax-exempt companies who hire someone that is a member of a WOTC target group can apply for a general business credit against their income tax.

Pre-Screening And Certification Process For WOTC

The IRS’s updates include information on the pre-screening and certification process. Form 8850 (Pre-Screening Notice And Certification Request for the Work Opportunity Credit) must be completely filled out by the employer and the job applicant in order to satisfy the requirement to pre-screen a job applicant on or before the day a job offer is made. The employer must then request certification after pre-screening a job applicant by submitting Form 8850 to the relevant State Workforce Agency (SWA) no later than 28 days after the employee starts working.

How Do Employers Claim WOTC?

Find Eligible Job Applicants

Contact the SWA or local unemployment office for a list of potential job applicants.

Pre-Screen Applicants

Have applicants complete the questionnaire on the first page of Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the job offer date to see if they qualify for one of the WOTC target groups.

File Necessary Documents

Submit the completed Form 8850, Work Opportunity Credit, and Employment and Training Administration (ETA) Form 9061 with the job applicant, within 28 days of the eligible new hire’s start date.

Monitor Clocked Hours And Paid Wages

WOTC-certified employees must work at least 120 hours during the first year of employment for an employer to claim credits.

Claiming WOTC

Use IRS Form 5884, Work Opportunity Credit, when filing annual tax returns to claim the WOTC.

Keep Most Updated And Supporting Documents For Your Records

Make copies of all the forms and supporting documents submitted to SWAs and correctly track employee hours in case the IRS decides to audit the credits claimed.

WOTC Categories Of Workers

There are 10 distinct categories of workers under WOTC. The 10 categories are the following:

• Qualified IV-A Temporary Assistance for Needy Families (TANF) 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
• Food stamp (SNAP) recipients
• Supplemental Security Income (SSI) recipients
• Long-term family assistance recipients
• Qualified long-term unemployment recipients.