Is your organization looking to expand its workforce and having trouble finding workers to fill its needs? If so, you may need to broaden the hiring pool into which you usually cast a line for job candidates.
Since the mid-1990s, the federal government has incentivized employers to consider applicants they might not usually look at through the Work Opportunity Tax Credit (WOTC). However, as of this writing, the tax break’s time is running out. Unless Congress takes action in the next few months, the WOTC will expire on December 31, 2025.
Targeted groups
Generally, an employer may qualify for this credit by paying eligible wages to members of what the IRS describes as “certain targeted groups who have faced significant barriers to employment.” These groups are:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families program,
- Qualified veterans,
- Qualified ex-felons,
- Designated community residents,
- Vocational rehabilitation referrals,
- Qualified summer youth employees,
- Qualified members of families in the Supplemental Nutritional Assistance Program,
- Qualified Supplemental Security Income recipients,
- Long-term family assistance recipients, and
- Long-term unemployed individuals.
To claim the WOTC, you must first get certification that a new hire is a member of one of the targeted groups. To do so, you need to submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to your state agency within 28 days of the eligible worker’s first day on the job.
Various requirements
Beyond submitting the form, you must meet various other requirements to qualify for the credit. For example, each eligible employee must complete a specific number of service hours. Also, the credit isn’t available for employees who are related to or previously worked for an employer.
The rules and credit amounts vary depending on the targeted group an employee originates from. For most eligible employees, the maximum credit available for first-year wages is $2,400. However, the credit amount is $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.
If your organization qualifies for the WOTC, you’ll naturally need to claim it on your federal income tax return. And the credit’s value is limited to your income tax liability. Generally, a current year’s unused WOTC can be carried back one year and then forward 20 years.
Watchful eye
The One Big Beautiful Bill Act, which was signed into law in July, made permanent several tax breaks of interest to many employers. These include the qualified business income deduction and 100% bonus depreciation. Perhaps curiously, it didn’t address the WOTC.
The tax credit’s demise isn’t a sure thing, however. The WOTC has been extended three times since 2015, and Congress might save it again before year end. The CJ Group can keep you updated on any developments and identify many other tax strategies that may benefit your organization.
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