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The credit is limited to the amount of the business income tax liability or Social Security tax owed. On page two of Form 8850, there are four dates that must be provided before Form 8850 can be submitted to a SWA. They are the dates that the job applicant Gave information, Was offered job, Was hired, and Started the job. A “qualified long-term unemployment recipient” is an individual who has been unemployed for not less than 27 consecutive weeks at the time of hiring and who received unemployment compensation during some or all of the unemployment period. A “qualified IV-A recipient” is an individual who is a member of a family receiving assistance under a state program funded under part A of title IV of the Social Security Act relating to Temporary Assistance for Needy Families (TANF). The assistance must be received for any 9 months during the 18-month period ending on the hiring date.
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Richardson The WOTC program requires that applicants are pre-screened on or before the date of the initial job offer. Prescreening is not a new rule but rather the IRS is calling out that the WOTC process has always had prescreening as a requirement. For the IRS to take the time to issue such an update, it signals that they are aware that there are companies screening out of compliance, and it would further imply that this is an area they will audit to ensure compliance. To claim this tax credit, employers must first obtain certification that the employee they have hired is a member of a targeted group. Chances are, as a job prospect, you’ve filled out a job application where you’ve been asked questions about potential government assistance benefits, rehabilitation services, or your status as a U.S. veteran.
WOTC is a federal tax credit program that allows companies to receive tax credits when they hire individuals from defined target groups who have consistently faced significant barriers to employment. The Work Opportunity Tax Credit program was designed to provide an incentive for employers to consider job applicants from targeted groups. Targeted groups include former felons, vocational rehabilitation referrals, Summer Youth program participants, and recipients of Supplemental Nutrition Assistance Program (SNAP) Supplemental Security Income (SSI), or long-term Unemployment benefits, among others. Previous guidance under the Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement – all identification of TJTC eligible hires was done on the first day of work. Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit.
See the instructions for Form 3800, General Business Credit, for more details. Some organizations might tell you that screening applicants post hire allows for the client to collect the WOTC credit faster. Under the current IRS guidance, not prescreening places an organization out of compliance. You’ll also need to calculate the maximum amount of the allowable tax credit depending on which target group the employee is from. Documentation and administration are critical to maximum credit capture, and it’s important to comply with the WOTC certification criteria. But all too often however, companies fail to fully capitalize on the benefits of this tax credit—or spend more time and effort than necessary when trying to manage their tax credits.
The total tax credit depends on the number of hours the eligible employee works during their first year of employment (and second year for TANF recipients), their total wages and the target group they came from. For all target groups other than long-term TANF recipients, the credit amound equals 25 percent of their wages if they work at least 120 hours, and up to 40 percent of their wages if they work at least 400 hours during the year, up to the tax credit maximum. This includes both taxable and certain tax-exempt employers located in the United States and in certain U.S. territories. While taxable employers claim the WOTC against income taxes, eligible tax-exempt wotc adp employers can claim the WOTC only against payroll taxes and only for wages paid to members of the Qualified Veteran targeted group. It’s wise to make copies of all documents submitted to each state workforce agency in connection with the WOTC program. You may need these documents if the IRS wants to verify that your business qualified for the credits it claimed on its tax returns.
So many people today have smartphones, so I really appreciate that, from a processing standpoint, ADP is forward thinking and is making the process easier. The WOTC program, if you have the right compliance and administrative capability in place, could benefit your bottom line. Does the manner in which your organization manages its WOTC program make it more of a financial boon or an administrative burden? The answer to this crucial question largely depends on financial leaders like you.
If you want to learn more about the Work Opportunity Tax Credit, ADP has a WOTC resource center you can explore. It includes a compliance overview, and a couple of ebooks on the recent IRS update as well as a guide to “Making Employee Screening Simpler”. Adaptable HCM designed to drive people performance and keep ahead of continual change.
The amount of the tax credit available under the WOTC program varies based on the employee’s target group, total hours worked and total qualified wages paid. As of 2020, most target groups have a maximum credit of $2,400 per eligible new hire, but some may be higher. Hiring certain qualified veterans, for instance, may result in a credit of $9,600 per eligible new hire.
The steps themselves are relatively straight-forward, but they can be overwhelming when there are large volumes of applicants and new hires to process. The great news is that the process is one that lends itself well to automation, with workflows that can alert employers to requirements and deadlines. I was very impressed with how ADP blended their technology, data insights and tax credit expertise. If you’re struggling to find eligible applicants, try reaching out to your state’s WOTC coordinator or local unemployment offices to see if they have programs that can introduce you to good candidates.
The WOTC is a proactive hiring credit and is only available for new employees. That’s because the intent of the program is to provide an employer with some idea that the applicant fits into a WOTC target group before a job offer is made. The Work Opportunity Tax Credit is a federal tax credit available to employers who hire and retain qualified veterans and other individuals from target groups that historically have faced barriers in securing employment. By creating economic opportunities, this program also helps lessen the burden on other government assistance programs.
The employer has 28 calendar days from the new employee’s start date to submit Form 8850 to the designated local agency located in the state in which the business is located (where the employee works). See the Instructions to Form 8850 and the DOL Employment and Training Administration’s website on WOTC for more information. Additionally, see the LB&I and SB/SE Joint Directive on the Work Opportunity Tax Credit that the IRS issued to help certain employers affected by extended delays in the WOTC certification process. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be taken into account in determining the WOTC for certain qualified veterans. In general, taxable employers may carry the current year’s unused WOTC back one year and then forward 20 years.