Read This Before Expanding Your Workforce
In an effort to increase employment among certain targeted populations, the federal government is offering a tax incentive to employers. If your organization needs to expand or supplement its workforce between now and the end of 2019, you can reduce your wage deduction dollar for dollar by claiming the elective work opportunity tax credit (WOTC).
The credit can amount to roughly $6,000 and is taken as a percentage of each employee’s first year wages. It is calculated based on how much the employee is paid during the one-year period from the date they begin work, and the tax-year credited is the year that they start working.
The credit provided depends upon which targeted group the individual’s eligibility is based upon, as well as how many hours the employee works during the one-year period. The full credit is 40 percent, and in order to receive that the employee must work at least 400 hours during the time period. Working less time — between 120 and 399 hours — reduces the credit by 15 percent down to 25 percent. Some veterans or recipients who have received long term family assistance can provide a tax credit worth as much as $9,600 or $9,000 respectively, though in most cases the tax credit for each eligible employee is $2,400.
There is a long list of groups that the 2015 Work Opportunity Tax Credit targeted. If you choose to hire an employee from among those identified, you must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit in order to claim the credit. This form must generally be submitted to the appropriate Designated Local Agency or state workforce agency within four weeks of the worker’s first day of employment, though exceptions can be made and more time provided in certain circumstances.
It is important to remember that this credit will not be extended for hiring those who have previously been employed by your organization, for workers hired to replace striking or locked out workers, or for certain family members. Those employees receiving federally funded on-the-job training also do not qualify for the credit. The workforce groups that currently qualify for the credit include
- Designated community residents
- Long-term unemployed individuals who have been without work for 27 consecutive weeks
- Summer youth employees
- Those enrolled in Long-term family assistance
- Those enrolled in the TANF (Temporary Assistance for Needy Families program
- Those who receive SSSI
- Those who receive supplemental nutritional assistance benefits
- Vocational rehabilitation referrals
There are certain special rules or credits that apply to some of these groups. For example, for summer youth employees, the credit provided is for employment that specifically takes place between May 1 and September 15th, and offers the 40 percent credit only for up to $3,000, or a maximum of $1,200 per employee.
The credit offered for veterans can vary depending upon how long they have been unemployed, whether or not they are receiving service-connected disability payments, and the date that their active duty service ended. The maximum credit for veterans can range between $4,800 and $9,600 per employee, and is based on first-year wages between $12,000 and $24,000.
The greatest tax benefit comes from hiring those who are long-term family assistance recipients, as employers have the opportunity to get an additional 50 percent credit of up to $10,000 if the employee works for a second year. First year wages for this group earn a maximum credit of $4,000 per employee, and is based upon first-year wages of $10,000.
There are clear advantages to taking advantage of the Work Opportunity Tax Credit, both for the organization and for the social good, but it is important to remember that it may impact your ability to claim other employment-related tax credits. It is also important to remember that as it is part of the general business credit, the same rules and limitations and carryover provisions that are already in place for that credit also apply here.
Should you be taking the Work Opportunity Tax Credit? Let us help with your tax planning. Call today at (813) 600-3199 to discuss your situation.