With many businesses facing a tight job market, the Internal Revenue Service reminds employers to check out a valuable tax credit available to them for hiring long-term unemployment recipients and other categories of workers with employment barriers.
The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. For any employer considering this option, the WOTC may be able to help.
For those who haven’t claimed the WOTC in a while, the IRS noted that legislation enacted in recent years has both expanded and modified the credit. For example, legislation effective Jan. 1, 2016 added a new category for long-term unemployment recipients 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.
Here’s how it works.
The credit, usually claimed on Form 5884, Work Opportunity Credit, is generally based on wages paid to eligible workers during the first two years of employment. 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, with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
There are now 10 categories of WOTC-eligible workers. Besides long-term unemployment recipients, the other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:
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.
– IRS
