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How the new Tax Credit can help employers hire new workers

Posted on May 14, 2018

It’s no secret that businesses face a tight job market out there.

At Teipen Selanders Poynter & Ayres, we understand that may mean thinking outside the box when it comes to hiring, as long as you stay within the confines of federal and state employment regulations.

This year in particular, say our CPAs, the law is on your side.

The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire certain categories of workers who face significant barriers to employment. If you are considering this option, the WOTC may be able to help with expanded and modified credits.

As of January 2016, there is a business credit for hiring long-term unemployment recipients (those who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time).

Called the Work Opportunity Credit, this business tax credit is based on wages paid to eligible workers during the first two years of employment. Eligible businesses claim the WOTC on their income tax return.

To qualify for the credit, an employer must first request certification by filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit. This must be filed at the state workforce agency within 28 days after the eligible worker begins work.

Interestingly, there are now 10 recognized categories of WOTC-eligible workers. Besides long-term unemployment recipients, the other categories include:

  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • 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.

Note:  Although the WOTC credit is not available to tax-exempt organizations for most hiring categories, a new IRS rule allows these organizations to receive WOTC for hiring qualified veterans. Not-for-profit organizations claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans.

Interested in hiring the workers your business needs and qualifying for a tax break? The CPAs at Teipen Selanders Poynter & Ayres can help you with the particulars.