Have you heard about the Work Opportunity Tax extension?

By George Chan

Reading time: 2 min

Are you a business owner? Are you aware that the government extended a tax credit program for businesses that hire specific individuals? The valuable tax credit known as the Work Opportunity Tax Credit (WOTC) has been extended through December 31, 2020. The WOTC provides that an employer is eligible for the tax credit based on qualified wages earned by members of the following targeted groups: 

  1. members of families under the Temporary Assistance for Needy Families program
  2. veterans
  3. ex-felons
  4. residents of designated communities
  5. vocational rehabilitation referrals
  6. employees of summer youth programs
  7. families in the Supplemental Nutritional Assistance Program,
  8. qualified Supplemental Security Income recipients,
  9. long-term family assistance recipients
  10. long-term unemployed individuals.

Are there specific requirements?

The WOTC has established a minimum requirement that requires the employee to complete at least 120 hours of service for the employer. However, the credit isn’t available for employees who (are) 

  • related to the employer 
  • work more than half of the time in a position that is not directly related to the employer’s business. 
  • Employees who’ve previously worked for the employer.

There are also different rules and credit amounts for employees. First-year wages are subject to some restrictions.

  • $2,400 for each employee, 
  • $4,000 for long-term family assistance recipients, and 
  • $4,800, $5,600, or $9,600 for veterans. 

For those employers who hire long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages. This means that an employer can receive a total maximum credit of $9,000 over two years.

Restrictions for summer youth employees include wages that must be paid between May 1 and September 15 of that year. Also, $1200 is the maximum credit that can be taken for any youth employees.

Rules and restriction:

  • No deduction is allowed for the portion of wages equal to the amount of the WOTC determined for the tax year;
  • Other tax credits are generally reduced when applied to any employee, but especially for those that qualify for WOTC. 
  • The credit is subject to the overall limits on the number of business credits that can be taken in any tax year. However, there is a way to hold onto your credits through a 1-year carryback and 20-year carryforward of unused business credits. 

Make sure you qualify

In summary, it is entirely possible that the employer might choose not to have the WOTC credit apply. JLK Rosenberger can help with these strict restrictions and limitations to gain the best possible match. Contact us with any questions that you may have. Please call us at 818-334-8636 or click here to contact us. We look forward to speaking with you soon.

Related Industry Insights

SEE ALL POSTS