Tax Credit Helps Employers Looking to Hire
The IRS reminds employers planning to hire new workers that a valuable tax credit is available to those who hire long-term unemployment recipients and others certified by their state workforce agency.
The Work Opportunity Tax Credit is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment.
In December 2015, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 extending the WOTC through 2019.
The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.
To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
Who Are Eligible Workers?
There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time.
The other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:
- Qualified IV-A Temporary Assistance for Needy Families recipients
- Unemployed veterans, including disabled veterans
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Food stamp (SNAP) recipients
- Supplemental Security Income recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C.
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