The WOTC is a credit available to a taxpayer that employs an individual from a targeted group, such as, very generally, a qualified IV-A recipient, a qualified veteran, a qualified ex-felon, a designated community resident, a vocational rehabilitation referral, a qualified summer youth employee, a qualified food stamp recipient, a qualified SSI recipient, a long-term family assistance recipient, or a long-term unemployment recipient hired on or after January 1, 2016. The amount of the WOTC is 40% (25% in the case of an employee who does not meet certain minimum employment requirements) of the first-year wages paid or incurred by an employer during the taxable year to employees who are members of a targeted group.
While the number of employees who may qualify for the WOTC is not limited, the amount of qualified first-year wages that may be taken into account with respect to any individual during a taxable year is generally limited to $6,000 (a $2,400 maximum credit). However, the wage limitation is $12,000 (a $4,800 maximum credit) in the case of a qualified veteran with a service-connected disability who has a hiring date not more than one year after having been discharged from active duty in the armed forces, $14,000 (a $5,600 maximum credit) in the case of a qualified veteran without a service-connected disability having aggregate periods of unemployment during the one-year period ending on the hire date which equal or exceed six months, and $24,000 (a $9,600 maximum credit) in the case of a qualified veteran with a service-connected disability having aggregate periods of unemployment during the one-year period ending on the hire date which equal or exceed six months.
An employee may not be treated as a member of a targeted group unless the employee goes through a pre-screening process. That is, the employer must either: (1) on or before the day the individual begins work, obtain certification from a designated local agency (“DLA”) that the individual is a member of a targeted group; or (2) complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day the individual is offered employment and submit the form to the appropriate DLA within 28 days after the individual began work.
In light of the fact that the extension of the WOTC to wages paid or incurred by an employer with respect to an employee who began work after December 31, 2014, and before January 1, 2020, was not enacted until December 15, 2015, the Service granted transitional relief with respect to the pre-screening process. Specifically, the Service has given taxpayers until September 28, 2016, to submit a completed Form 8850 to the appropriate DLA for employees hired 2015 on or after January 1, 2015 through August 31, 2016.
Machen McChesney Insights
- The WOTC can be a valuable credit that ranges between $2,400 and $9,600 per qualifying employee who began work during the taxable year. However, as noted above, each employee is subject to a pre-screening application process and the application deadline for 2015/2016 hires is fast approaching. Machen McChesney can assist with determining which employees are from a targeted group as well as the pre-screening application process.
If you have any questions about the above article or need further assistance with any tax planning matter, contact Trisha Williams, CPA at (334) 887-7022 or please feel free to leave us a message below.
This article originally appeared in BDO USA, LLP's "Federal Tax Alert" newsletter (June 2016). Copywrite 2016 BDO USA, LLP. All rights reserved. www.bdo.com