global Tax IRS Updates Work Opportunity Tax Credit (WOTC) Guidance October 04, 2022 Attention employers…the IRS has released updated info regarding the WOTC, including information on the pre-screening and certification process. Here’s what you need to know. Employers, have you heard? The IRS has recently updated WOTC guidance. In this increasingly tight labor market, the WOTC might be able to offset some challenges. See if you can benefit. What is the Work Opportunity Tax Credit? The WOTC is designed to encourage employers to hire workers from certain targeted groups that historically have found it challenging to land employment. The amount of the credit ranges from $2,400 up to $9,600 per employee, depending on the targeted group and the qualified wages paid to the new employee. Generally, the credit equals 40% of qualified first-year wages for individuals who work at least 400 hours that first year. No cap applies to the number of new hires who can qualify. The amount of the credit is limited by the amount of business income tax liability or Social Security tax owed. The normal carry-back and carry-forward rules for general business tax credits apply. The credit was originally created under the Small Business Job Protection Act of 1996 and Congress has regularly extended it, most recently in 2021. The credit has been extended until December 31, 2025. What’s new? The IRS has updated the prescreening process for new hires. In order to prescreen a job applicant for WOTC eligibility, both the employer and job applicant must now complete a Form 8850: Pre-Screening Notice and Certification Request for the Work Opportunity Credit. Post pre-screen, employers are required to submit the form to the appropriate state workforce agency no later than 28 days after the employee’s first day. Who qualifies for the WOTC? The IRS has designated 10 significant barriers to employment that would qualify someone for the WOTC: Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients. Certain veterans, including unemployed or disabled veterans. People who were formerly incarcerated or previously convicted of a felony. Designated community residents living in Empowerment Zones or Rural Renewal Counties. Vocational rehabilitation referrals. Summer youth employees living in Empowerment Zones. Supplemental Nutrition Assistance Program (SNAP) recipients. Supplemental Security Income (SSI) recipients. Long-term family assistance recipients. Qualified long-term unemployment recipients. How much is the credit worth? Generally, the credit equals 40% of qualified first-year wages for individuals who work at least 400 hours that first year. No cap applies to the number of new hires who can qualify. The amount of the credit is limited by the amount of business income tax liability or Social Security tax owed. The normal carry-back and carry-forward rules for general business tax credits apply. For hires from most groups, the credit generally is 40% of the first $6,000 of wages paid to the employee, so the maximum possible credit is $2,400. For hiring a disabled veteran, the maximum credit generally is $4,800. But the maximum credits are even higher for hiring veterans who’ve been unemployed for six months or more in the preceding year: $5,600 for nondisabled veterans and $9,600 for disabled veterans. There’s no statutory limit on how many new hires you can claim the credit for. So, if, for example, you hire 10 disabled veterans, your credit could be $96,000. Questions? Need help with your form 8850? Contact us.
