Employers who wish to increase workforce diversity and benefit disadvantaged workers can get a significant tax credit for their efforts. The work opportunity tax credit (WOTC) is a credit that is available to businesses that hire members of “targeted groups,” generally employees with economic or physical disadvantages. The following are targeted groups: Unemployed veterans, recipients of various government assistance programs (TANF, SSI, and SNAP), residents of designated areas who meet certain age criteria, disabled individuals, and ex-felons. The amount of the credit is based on a percentage of wages paid, with the maximum allowable credit ranging from $1,200 per employee for summer youth employees residing in designated areas to $9,600 for certain qualified veterans.
Although the signing of the PATH Act in December 2015 resolved many uncertainties regarding 2015 tax filings, it also left some unanswered questions. One of those questions concerned the WOTC, which had actually expired at the end of 2014 before Congress retroactively extended it through December 31, 2019. A significant prerequisite for taxpayers wishing to claim the credit is the filing of Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form is generally due no later than 28 days after the eligible employee begins work. When the PATH Act retroactively extended the credit to the beginning of 2015, a question arose as to how employers should file the necessary forms for employees who had already been hired before the credit was extended. In March, the IRS announced that employers would be granted an extension of time to file the Form 8850. Recently, the IRS announced an additional extension of time: For employees beginning work between January 1, 2015 and August 31, 2016, the filing deadline is moved to September 28, 2016. In addition to extending the credit, the PATH Act added “long-term unemployment recipients” as a new targeted group. If an employee was hired from this group between January 1, 2016 and August 31, 2016, the filing deadline is also September 28, 2016.
Additional information on the credit is provided by the IRS at https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit-1. Employers who are interested in learning more about this opportunity should contact their Hertzbach Tax Advisor at 410-363-3200 or 800-899-3633. We look forward to speaking with you.