Work Opportunity Tax Credit Provides Incentive for Hiring

Amidst early signs of economic recovery, manufacturers seeking to expand their workforces may want to capitalize on Work Opportunity Tax Credit (WOTC) benefits.

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The WOTC applies to qualified employees who begin work before Sept. 1, 2011. Depending upon specific circumstances, an employer can realize a two-year total tax credit of up to $9,000. Additional state credits or incentives may be available as well.

The WOTC applies to individuals hired from one of the following nine targeted groups:
•    Qualified Temporary Assistance to Needy Families Recipients (TANF)
•    Qualified Veterans/Disabled Veterans
•    Qualified Ex-Felons
•    Qualified Designated Community Residents (DCR) residing in an Empowerment Zone (EZ), Renewal Community (RC), or in a Rural Renewal County (RRC)
•    Qualified vocational Rehabilitation Agency Referrals
•    Qualified Summer Youth (SY)
•    Qualified Food Stamp Recipients (FS)
•    Qualified Supplemental Security Income Recipients (SSI)
•    Qualified Long-Term Family Assistance Recipients (LTFAR).

An employer hiring an individual from one of those targeted groups must complete Internal Revenue Service (IRS) Form 8850, and the U.S. Department of Labor’s Individual Characteristic Form (ETA-9061).

Among other items, Form 8850 requires the employee’s contact information, birth date and Social Security number. Additional information is required for LTFAR recipients. Required employer information includes the Employer Identification Number (EIN), the date the employee was offered the job, the employee’s hiring date and the day the employee started work.

Form ETA-9061 is required to attain conditional certification that the employee meets WOTC criteria. The employer must list sources used to verify that the individual meets target group eligibility. Also, the individual cannot have previous employment history with the employer. The individual’s wages must be listed as well.

Forms 8850 and ETA-9061 must be postmarked and mailed to the employer’s state workforce agency within 28 days of the employee’s starting date. The following two-tier standard then determines the credit amount:

Tier 1 employee (working 120 to 399 hours): A 25 percent credit is applied to qualified first-year wages up to $6,000. The corresponding maximum credit is $1,500. The credit applies to all WOTC target groups, except Summer Youth and the New Disabled Veteran Subgroup. The wage cap for Summer Youth is $3,000, for a maximum $750 credit. Separate credit tier criteria apply to the New Disabled Veteran Subgroup.

Tier 2 employee (working 400 hours or more): The WOTC equals 40 percent for qualified first-year wages up to $6,000, and a maximum credit of $2,400. The credit applies to all WOTC targeted groups, except the New Disabled Veteran Subgroup, Summer Youth and the LTFAR group. Summer Youth wages up to $3,000 qualify for the 40 percent credit. That equates to a credit up to $1,200.

Tier 1 New Disabled Veteran Subgroup (working 120 hours to 399 hours): The credit equals 25 percent of qualified first-year wages up to $12,000. The maximum credit is $3,000.

Tier 2 New Disabled Veteran Subgroup (working 400 hours or more): The WOTC is 40 percent of qualified first-year wages up to $12,000. The maximum credit is $4,800.

LTFAR (Long-Term Family Assistance Recipient): A maximum credit of $9,000—over a two-year span—is available, based on a 400-hour retention period. The first-year credit equals 40 percent of qualified wages up to $10,000. The corresponding maximum first-year credit is $4,000. The second-year credit is equal to 50 percent of qualified wages up to $10,000. The second-year maximum credit is $5,000.

While meeting such certification, documentation and filing requirements requires additional human resources efforts, the tax benefits may make WOTC worth investigating and pursuing.

Kris Cooke, CPA, kris.cooke@weaverllp.com, is a Senior Manager in Tax and Strategic Business Services at independent public certified accounting firm Weaver, with offices in Dallas, Fort Worth, Houston, San Antonio and Austin.

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