One tax break often overlooked is the Work Opportunity Tax Credit (WOTC). The WOTC has been around for years but many businesses are not aware of it.
It is a program that allows employers who hire individuals from certain targeted groups (see list below) to receive a federal income tax credit.
Industries such as construction, restaurants, transportation, health care, c-stores, manufacturing, distributors, call centers, and staffing agencies tend to see the most qualifying employees for this credit.
How much is the credit worth?
It ranges from $2,400 to $9,600 per new hire and there is no limit on the number of new hires or total amount of credits you can claim.
That's like free money from the government! Sadly, millions of dollars in tax credits go unclaimed each year even though employers are hiring workers every day from the WOTC targeted groups.
Why you have to act fast?
One reason the credit is overlooked is because you have to be proactive to take it. Even though it’s a federal credit paperwork must be filed with the state workforce agency within 28 days of the employees start date. Businesses have to be aware of this deadline in order to qualify their targeted group employees for the credit.
The good news is that on June 17, 2016 the IRS provided relief that allows employers to claim the credit on employees hired January 1, 2015 through August 31, 2016...but you must file the paperwork no later than September 28, 2016.
You get a second chance to look back at hiring records and take advantage of this underutilized tax credit...but keep in mind the 28 day filing deadline is back in place for new hires after August 31, 2016.
What should you be doing immediately?
- If you ARE NOT currently participating in the WOTC you need to review your 2015 hiring records and check them against the targeted list below. Have the qualifying employees complete Form 8850. Then submit the application online.
- If you ARE currently taking advantage of WOTC you should review your 2015 new hire files to be sure that you did not overlook any qualifying employees. If so have the employee complete Form 8850. Then submit the application online.
Here are 3 steps to follow to claim the credit:
Step 1: Know Your Targeted Groups
To determine whether you qualify for this tax break first determine if a new hire belongs to one of these targeted groups:
- Food stamp (SNAP) recipients
- Qualified recipients of Temporary Assistance for Needy Families (TANF)
- Designated community residents (living in Empowerment Zones or Rural Renewal Counties)
- Vocational rehabilitation referrals
- Summer youth employees (living in Empowerment Zones)
- Supplemental Nutrition Assistance Program benefits recipients
- Supplemental Security Income recipients
Effective January 1, 2016 the following target group was added:
- Long term unemployment recipient
Each category has specific rules. Here is a chart for the certification criteria for the WOTC target groups.
Step 2: Check whether a new hire meets the other requirements of the credit.
You won't be eligible for any credit if a new employee:
- Worked for you fewer than 120 hours during the year
- Previously worked for you or
- Is your dependent or relative
Step 3: Complete Form 8850 and submit online
Missouri is now offering an online application system for submitting certification paperwork. The application entry process includes entering employee and employer information from the completed and signed IRS Form 8850.
How we can help?
We can do the work and let you take the credit.
We can help you determine if your new hires qualify, calculate the credit and complete and file the necessary forms. If you have already filed your 2015 income tax return we can prepare the amended returns to request the refund.