Work Opportunity Tax Credit – You May Still Qualify for 2014

Your Guide to State, Local, Federal, Estate + International Taxation

If you hire employees of a “targeted group” (defined below), you may be eligible for the Work Opportunity Tax Credit (WOTC). The IRS has granted a transitional relief period until April 30, 2015 (originally this was 28 days after hire date), for qualified employees hired January 1, 2014 through December 31, 2014, since the law extending the credit was not passed until late December 2014.

Background. The WOTC allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee. Where the employee is a long-term family assistance (LTFA) recipient, the WOTC is a percentage of first and second year wages, up to $10,000 per employee. Generally, the percentage of qualifying wages is 40% of first-year wages; it’s 25% for employees who have completed at least 120 hours, but less than 400 hours, of service for the employer. For LTFA recipients, it includes an additional 50% of qualified second-year wages.

The maximum WOTC for hiring a qualifying veteran generally is $6,000. However, it can be as high as $12,000, $14,000, or $24,000, depending on factors such as whether the veteran has a service-connected disability, the period of his unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.

Before an employer may claim the WOTC, the employer must obtain certification that the hired individual is a targeted group member. Certification of an individual’s targeted group status is obtained from a DLA-a State employment security agency. Targeted groups include: qualified IV-A recipients (qualified recipients of aid to families with dependent children or successor program); qualified veterans; qualified ex-felons; designated community residents; vocational rehabilitation referrals; qualified summer youth employees; qualified supplemental nutrition assistance benefits recipients; qualified SSI recipients; and long-term family assistance recipients.

An individual isn’t treated as a member of a targeted group unless: (1) on or before the day the individual begins work, the employer obtains certification from the DLA that the individual is a member of a targeted group; or (2) the employer completes a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits such notice to the DLA to request certification not later than 28 days after the individual begins work.

A reduced WOTC for hiring qualified veterans is also available to a tax-exempt employer.

Extension of time provided. IRS Notice 2015-13 provides that a taxable employer that hired a member of a targeted group, or a qualified tax-exempt organization that hired a qualified veteran, on or after Jan. 1, 2014 and before Jan. 1, 2015, will be considered to have satisfied the requirements if it submits the completed Form 8850 to request certification, to the appropriate DLA not later than Apr. 30, 2015.

By Jeremy Smith, CPA