At the end of last year Congress passed the PATH (Protecting Americans from Tax Hikes Act of 2015). This legislation provided a number of changes to the “tax extenders” including making some incentives permanent and providing long term extensions of other benefits. A key change was made to the WOTC (Work Opportunity Tax Credit) extending the incentive through 2019. The good news is that the extension allows employers to file for the credit for eligible hires for 2015 and the coming years. Transition relief that extends this deadline to June 29, 2016 for qualified employees hired from Jan. 1, 2015 to May 31, 2016. To help clients, prospects and others understand the changes and how it may impact them, JLK Rosenberger has provided a summary of key points below.
About the WOTC
The WOTC is a federal tax credit that encourages companies to hire employees from specific “targeted” groups. The groups generally consist of individuals who have had significant challenges finding employment. A key change made in the extension process is that companies can now receive the credit for hiring those classified as long term unemployed. This means any individual who has run through their standard unemployment compensation (meaning the first 6 months of unemployment benefits). Below is a comprehensive list of qualifying individuals companies need to hire to qualify for the credit, including:
- Veterans, including disabled veterans
- Vocational rehabilitation referrals
- Supplemental security income recipients
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Summer youth employees living in Empowerment Zones
- Supplemental Nutrition Assistance Program Benefits (SNAP) – food stamp – recipients
- Long-term Temporary Assistance for Needy Families (TANF) recipients
- Long-term unemployment recipients (effective starting January 1, 2016)
Calculating the Credit
After making a “qualified” hire, the employer is allowed to claim a credit, the amount of which depends upon the target group of the individual hired, the wages paid in the first year, and the number of hours worked. For taxable employers, the credit is equal to 25% (if the employee works at least 120 hours) or 40% (if the employee works at least 400 hours) of a new employee’s first-year wages, up to the maximum. Qualified tax-exempt employers can claim a lower percentage. The credit can be as high as $9,600 per qualified veteran for taxable employers or up to $6,240 for qualified tax-exempt organizations, but the actual amount of the credit will depend on a variety of factors.
Changes Coming to IRS Form 8850
Employers must first obtain certification from their state agencies (Designated Local Agency, or “DLA”) that an individual is a member of the targeted group before they can claim the credit. To do so, they need to file Form 8850, Pre-Screening Notice and Certification, within 28 days of the employee’s first day of work. The WOTC’s updated deadline allows employers to file the necessary Form 8850 for employees hired January 1, 2015 through May 31, 2016 by June 29, 2016.
In light of the new IRS guidance and the recent addition of a targeted group to the WOTC eligibility pool, the federal government is modifying Form 8850 so that employers can use it to request certification from DLAs for qualified long-term unemployment recipients. They will likely require the individual signing the form to attest that the employee meets the qualified long-term unemployment requirements and verify the period(s) during which the individual was unemployed and received unemployment compensation.
The extension and expansion of the WOTC creates new opportunities for employers. If you would like to learn more about the benefits or for assistance with certification and filing, JLK Rosenberger wants to help. For additional information please call us at (949) 860-9890 or click here to e-mail us. We look forward to speaking with you soon.