Tag: WOTC

Learn everything you need to know about the Work Opportunity Tax Credit (WOTC): benefits, eligibility, and application process for businesses.

Who qualifies for WOTC? Discover the comprehensive eligibility criteria and claim your benefits today. Learn how to maximize work opportunity tax credit claims.

Employers working with a vendor to receive Work Opportunity Tax Credit services should be aware of how to comply with the new ETA Form 9198.

Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL), together with several other lawmakers, have introduced the “Improve and Enhance the Work Opportunity Tax Credit Act.” According to Congressman Smucker’s press release, “The Improve and Enhance the Work Opportunity Tax Credit Act of 2023 would update the WOTC, which has not been changed since its enactment twenty-seven years ago, and encourage longer-service employment. The bill would (1) increase the current credit percentage from 40% to 50% of qualified wages and (2) add a second level of credit for employees who work 400 or more hours. In addition, the bill eliminates the arbitrary age cap at which SNAP recipients are eligible for WOTC. This change will provide an incentive to hire older workers and better align the credit with the work reforms adopted in the debt ceiling negotiations in 2023.” The text of the bill can be found here. The following are the specific changes the bill proposes: For certified employees who work at least 400 hours in their first year, increase the credit percentage from 40% to 50%. For certified employees who work more than 400 hours in their first year, increase the qualified wage caps as follows: For target groups with a cap of $6,000 in qualified wages, double the qualified wages to $12,000 for a total possible credit of $6,000 (compared to the current $2,400). Disabled veteran: The current credit is 40% of the first $12,000 (up to $4,800); the bill would increase that to 50% of the first $24,000 (up to $12,000). Long-term unemployed veteran: The current credit is 40% of the first $14,000 (up to $5,600); the bill would increase that to 50% of the first $28,000 (up to $14,000). Long-term unemployed disabled veteran: The current credit is 40% of the first $24,000 (up to $9,600); the bill would increase that to 50% of the first $48,000 (up to $24,000). The Summer Youth target group would remain at 40% and not go up to 50%. The age ceiling for the SNAP target group, currently at age 39, would be eliminated, allowing any new hire that otherwise meets the SNAP requirements to be certified. How and When Could This Happen? This bill represents the most significant proposal to enhance the value of WOTC in many years. However, to be considered, Congress needs to negotiate a tax bill. Tax bills are typically included with large legislative packages such as annual appropriation bills. Congress passed a continuing resolution in November to avoid a government shutdown and delay annual appropriations legislation until 2024. In this instance, Congress created two deadlines at which different parts of the government could shut down without new legislation: January 19 and February 2. According to the Washington Post, House Speaker Mike Johnson “pushed through the laddered approach — leaning on support from Democrats to pass the GOP-controlled chamber — while vowing not to take up another CR in January or February. He reiterated that pledge to House members in a letter last week. ‘It continues to be my intention that the House and Senate complete action on full-year bills ahead of the January 19 and February 2 deadlines provided for in the last continuing resolution,’ Johnson wrote. ‘I do not intend to have the House consider any further short-term extensions.’” Therefore, one opportunity for tax legislation will be in January in the context of government funding. Despite Speaker Johnson’s statements, that process could certainly be delayed further into 2024. Former House Ways and Means Chairman Dave Camp recently interviewed the current Ways and Means Chairman, Jason Smith, at a PwC event. According to Politico’s Weekly Tax newsletter, “[Chairman] Smith believes that a variety of potential vehicles could exist next year, according to Camp — which would mean avenues beyond government funding measures needed early in 2024.” However, even if Congress does take up tax legislation, it is unlikely that this WOTC bill will rise to the top of priority issues. Nevertheless, it introduces important policy considerations for the future of the program, which comes up for renewal at the end of 2025. Department of Labor to Study WOTC DOL has funded an independent contractor, Economic Systems, Inc., to perform an evaluation of the WOTC program. Among the questions the evaluation seeks to research are: What are the characteristics of jobs of WOTC-hires? What types of employers apply for WOTC? How is WOTC reflected in employer hiring and retention practices/policies? To what extent does pre-screening for WOTC eligibility affect employment outcomes? According to a public notice, surveys of various interest parties will be issued in the winter of 2024-2025. State WOTC Programs Several state legislatures have proposals to institute some kind of state WOTC program. Maryland successfully passed a state income tax credit match to WOTC effective in 2022. Here are some of the others we are watching: Georgia House Bill 372 Missouri Senate Bill 1207 New York Senate Bill S4833A & Assembly Bill A1991A North Carolina House Bill 853 Pennsylvania HM 41747 Pennsylvania HM 40254 On December 19, 2023, the city of Tacoma, Washington passed an ordinance creating a $1,000 local WOTC for employers that add a new position for an individual certified by the State Workforce Agency as a member of the vocational rehabilitation WOTC target group.

Learn how to apply for WOTC and gain different benefits with this tax incentive often described as a win-win opportunity for employers and employees.

WOTC is a tax credit program encouraging employers to invest in job seekers with disadvantages. Learn more with this overview and tips for implementation.

The WOTC program can enhance your workforce and save your organization money with tax credits. Here’s how to make it easier to claim.

Learn about the benefits WOTC brings to communities, individuals and companies and get ready to take advantage of the program with your next eligible hire.

Find out how to optimize and streamline the WOTC screening process so your business can use WOTC to better offset hiring costs.

Overcome common WOTC screening challenges to optimize management and increase savings while helping disadvantaged individuals find employment.

On September 19, 2022, the IRS published a news release regarding the Work Opportunity Tax Credit (WOTC), “IRS updates Information on tax credit helping businesses to hire certain categories of workers.” We previously noted that information on the IRS WOTC FAQ page was updated from: Pre-screening and Certification. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850. To the following IRS WOTC revised text: An employer must pre-screen and obtain certification from the appropriate Designated Local Agency (referred to as a State Workforce Agency or SWA) that an employee is a member of a targeted group to claim the credit. To satisfy the requirement to pre-screen a job applicant, on or before the day that a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is a subsidy designed to incentivize the hiring and employment of individuals who are members of targeted groups. 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. To confirm that the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes that the job applicant is a member of a targeted group, the date the applicant Gave information about being a targeted group member must be a date that is the same as, or before the date the applicant Was offered job. The dates that the job applicant Was hired and Started the job must be on or after the dates the applicant Gave information and Was offered job. Form 8850 including the dates entered on page two of Form 8850, must be signed under penalties of perjury and must be submitted to the SWA (or postmarked, if mailed) no later than 28 days after the date that the job applicant Started the job. A number of commentators have given the impression that this update reflects a new policy or a change of the WOTC program’s process with statements such as, “The IRS has updated the prescreening process for new hires.” In fact, the IRS is itself giving this impression by repeatedly tweeting a graphic that says, “The IRS has updated the pre-screening and certification process for the Work Opportunity Tax Credit.” Has the IRS Changed Anything About WOTC? No. The update has merely emphasized and more fully articulated rules that have been in the Internal Revenue Code since the inception of WOTC. WOTC was created by Section 1201 of the Small Business Job Protection Act of 1996 (P.L. 104-188), and signed into law by President Clinton on August 20, 1996. While the law has been amended and extended numerous times since then, the very first version included the following requirement, which has remained unchanged through every subsequent iteration: Special rules for certifications. -- (A) In general.--An individual shall not be treated as a member of a targeted group unless-- (i) on or before the day on which such individual begins work for the employer, the employer has received a certification from a designated local agency that such individual is a member of a targeted group, or (ii)(I) on or before the day the individual is offered employment with the employer, a pre-screening notice is completed by the employer with respect to such individual, and (II) not later than the 21st day after the individual begins work for the employer, the employer submits such notice, signed by the employer and the individual under penalties of perjury, to the designated local agency as part of a written request for such a certification from such agency. The only change to this section of the statute occurred in the Tax Relief and Health Care Act of 2006 (P.L. 109-432), in which Congress extended the paperwork filing deadline from 21 days to 28. This consistency is evident on the pre-screening form itself, IRS Form 8850. The earliest version of that form from 1996 includes the following jurat above where the form requires a job applicant’s signature: “Under penalties of perjury, I declare that I gave the above information to the employer on or before the day I was offered a job, and it is, to the best of my knowledge, true, correct, and complete” (emphasis added). This statement is identical to that found on the most current version of the form. The IRS did not include an explanation for why it decided to “update” its WOTC information with information as old as the program, but such an update indicates a concern that some may be misunderstanding this basic requirement. To learn more about solutions for capturing WOTC and other tax credits, visit Experian Employer Services.

The Work Opportunity Tax Credit program (WOTC) has been around for several decades, yet many employers are still not aware of its features and benefits. By hiring from a pool of eligible employees and applying for this voluntary program, employers claim over $1 billion in tax credits every year. To optimize a WOTC program, it's important to fully understand Form 8850. Per employee, the tax credits can reach up to $9,600, giving employers a reason to hire someone less skillful and experienced as compared to other applicants. In other words, they can benefit by hiring the eligible individuals belonging to one of the vulnerable target groups. The entire WOTC process is designed with simplicity in mind and includes completing two easy forms, mailing them off to a State Workforce Agency, and receiving a certification in return, thus allowing the claiming of the WOTC credits to begin. Still, millions of dollars in available tax credits go unclaimed each year due to incomplete or inefficient WOTC screening. To prevent this, employers need to understand how the WOTC program works, Form 8850 as well as other documentation necessary for WOTC certification. What Is Form 8850 Used For and How Do Companies Qualify? One of the essential tools in the implementation of WOTC is Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. The IRS designed it to streamline the screening and certification process for hiring qualified individuals belonging to target groups as defined by the program. Prior to making an employment offer, the employer needs to obtain information about the job applicants’ WOTC eligibility status. They are asked to self-identify as members of one of the following eligible groups:  Qualified veteran; Qualified IV-A recipient; Qualified ex-felon, Designated community resident; Vocational rehabilitation referral; Summer youth employee; Supplemental nutrition assistance program (SNAP) recipient; Supplemental Security Income (SSI) recipient; Long-term family assistance recipient; and Qualified long-term unemployment recipient. Minimum Hours for Targeted Groups and Analyzing Screening Compliance While there is no limit to the number of workers an employer can hire to qualify for WOTC, there is a cap on the credit per individual. This amount varies for each WOTC target group. Credit accumulation begins once an employee works a minimum of 120 hours. The credit continues to accumulate until the employee works a certain number of hours that maximizes the credit – for many credit categories that number ranges from 400-500 hours. Employers can also improve their WOTC benefits by improving their standard screening compliance rate. A company that hires 3,000 employees annually and has a screening compliance rate of 80% (i.e. 8 out of 10 applicants complete the WOTC Survey) may earn, for example, $150,000 or more per year by claiming WOTC. There are a few factors that impact Credits Earned including the type of industry, the Applicant Tracking System, Average Credit Certified and the Eligibility Rate. Compliance Requirements It is important to note that some applicants may be concerned about having to answer the personal questions on the WOTC certification forms. This can cause employers not to include WOTC screening into the hiring process in an effort to keep the number of applicants higher. However, any employer participating in the WOTC program is protected against any discriminatory claims or lawsuits for asking the questions on WOTC screening and application forms. At the same time, employers need to remember that applicants give the required information on or before the day a job offer is made. If they determine that an applicant is a member of a target group, employers complete the rest of the form 8850 no later than the day the job offer is made. Both the applicant and the employer must sign Form 8850 no later than the date for submitting the form to the SWA. Not complying with this requirement can expose employers to an IRS audit and the repayment of credits obtained in a non-compliant manor. Recently, the IRS has increased its audit capacity by hiring of 87,000 new agents. This challenge can be solved with automated WOTC management solution fully compatible with the WOTC process. Streamlined pre-employment screening improves the user experience and simplifies the process resulting in a higher application completion rate and an increase in tax credits. Misconceptions The WOTC represents a powerful incentive for employers, offering significant savings in tax credits. When selecting from a qualified applicant pool, considering applicants who will provide maximum tax savings to the organization is a smart and far-sighted business decision. However, many employers are reluctant to enter this procedure due to fears of discrimination claims stemming from the nature of questions posed in the form. This apprehension could be a big roadblock to ttaking full advantage of the WOTC program. Benefits of Outsourcing WOTC and Capturing Savings with Form 8850 In the current complex and unpredictable marketplace, every responsible employer is looking for different ways to maximize profit and ensure savings wherever possible. The WOTC program is one of the clear-cut ways to enable tax credit savings and, while demonstrating corporate social responsibility, empower the individuals belonging to targeted groups by hiring them. Form 8850 has a clear intent and design to streamline the procedure in compliance with the relevant legislation. The businesses not yet taking advantage of the WOTC program ultimately fail to secure available tax savings and lose out to competitors who do. Misconceptions are what stand between an employer and these savings rather than real reasons to avoid it. Yet, understanding Form 8850, as well as the safeguards built into it, allow employers a successful implementation of the available WOTC credits without any fear of possible discrimination against employees. It is undeniable that there are challenges to this process, which may seem overwhelming and take up valuable time and resources. However, an effective electronic WOTC platform is an obvious solution - enabling employers to capture available tax credits while remaining compliant. In addition to helping applicants complete WOTC forms quickly and correctly, employers can stay compliant with the necessary requirements, eliminate errors and meet WOTC screening deadlines. Through this transition, they streamline the procedure, reduce its length and secure another best practice in business, reaping the benefits along the way. Automate WOTC management to simplify the process, ensure compliant pre-screening, streamline the forms necessary for certification and identify more eligible applicants resulting in efficient capture of available tax credits.

There are several updates for employer tax credit programs in recent weeks relevant to businesses. These include an explanation from the IRS Chief Counsel on the proper treatment of improperly forgiven PPP loans, an update from a coalition of nonprofits seeking a retroactive restoration of the Employee Retention Credit (ERC), and new guidance from the IRS on the Work Opportunity Tax Credit (WOTC). IRS Chief Counsel Memo: Proper Treatment of Improperly Forgiven PPP Loans A new Chief Counsel memo dated August 19, 2022, explains that while Congress excluded forgiven PPP loans from gross income in the Consolidated Appropriations Act, 2021 (Pub. L. 116–260), if forgiveness was obtained despite not meeting the requirements for that forgiveness, the loan proceeds should then be included in gross income. They conclude: “If a taxpayer who does not factually satisfy the conditions for a qualifying forgiveness causes its lender to forgive the PPP loan by inaccurately representing that the taxpayer satisfies them, the taxpayer may not exclude the amount of the forgiven loan from gross income under 15 U.S.C. § 636m(i) or section 276(b)(1) of the CTRA 2020.” PPP loans were administered through the Small Business Administration (SBA), and IRS does not have direct jurisdiction over the issues involving the loans or their forgiveness. However, this aspect of taxable income treatment enables the IRS to get involved in the PPP loan forgiveness area. For taxpayers who took advantage of both the PPP and ERC programs, there is also a tax implication, namely the proper interaction of forgiven PPP loan funds and ERC qualified wages. This gives the IRS yet another angle to investigate the proper use of PPP loan funds. Nonprofits Reiterate Request to Restore ERC A coalition of nonprofit organizations have updated and resent their letter to President Biden and Congressional leaders. The update, dated September 13, 2022, includes their request “to retroactively restore the Employee Retention Tax Credit, as proposed in the bipartisan ERTC Reinstatement Act (H.R. 6161/S. 3625), extend this refundable payroll tax credit through 2022, and modify nonprofit eligibility beyond the current ‘gross receipts’ test and definition of eligible payroll expenses to include child care and education subsidies.” There does not appear to be any serious discussion in Congress to extend this employer tax credit program. IRS Updates WOTC Guidance A press release from the IRS alerts taxpayers to an update of their WOTC information webpage. As noted in the press release, the new information includes an emphasis on the pre-screening requirement that has been part of the program since its inception in 1996. It is interesting that IRS is choosing to highlight and reiterate rules that have always existed. Prior to the update, the relevant text read: Pre-screening and Certification. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850. The revised text reads: Pre-screening and Certification An employer must pre-screen and obtain certification from the appropriate Designated Local Agency (referred to as a State Workforce Agency or SWA) that an employee is a member of a targeted group to claim the credit. To satisfy the requirement to pre-screen a job applicant, on or before the day that a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is a subsidy designed to incentivize the hiring and employment of individuals who are members of targeted groups. 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. To confirm that the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes that the job applicant is a member of a targeted group, the date the applicant Gave information about being a targeted group member must be a date that is the same as, or before the date the applicant Was offered job. The dates that the job applicant Was hired and Started the job must be on or after the dates the applicant Gave information and Was offered job. Form 8850 including the dates entered on page two of Form 8850, must be signed under penalties of perjury and must be submitted to the SWA (or postmarked, if mailed) no later than 28 days after the date that the job applicant Started the job. Some individuals have a Conditional Certification (DOL-ETA Form 9062) issued by partnering agencies or SWAs. Employers can contact their SWAs for more information on Conditional Certifications. If an employer does not receive a certification on or before the day that the individual begins work, the employer must request certification by submitting Form 8850, to the SWA of the state in which their business is located (where the employee works) within 28 days of the individual beginning work. Employers should contact their SWA with any specific processing questions for Form 8850. Experian Employer Services tax experts regularly monitor and track updates to employer tax credit policies. Learn more about our tax credit solutions here.

The Inflation Reduction Act has implications for tax credits. Here's how it affects WOTC, Empowerment Zone credits, ERC and more.

Learn more about WOTC eligibility and WOTC target groups as well as why this program is considered a win-win situation for employers and employees.

Learn more about the benefits of the Work Opportunity Tax Credit and how to ensure tax savings while supporting individuals who face barriers to employment.