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Work Opportunity Tax Credit (WOTC)

What is the Work Opportunity Tax Credit?

The WOTC is one tool in a diverse toolbox of flexible strategies designed to help move people from welfare into gainful employment and obtain on-the-job experience. It joins other tax credits, education, and workforce training programs that help American workers with barriers to employment prepare for good jobs; ease their transition from job to job; benefit from the creation of effective regional economic development strategies; and create high performance workplaces.

UPDATE:WOTC for Employing Vets Extended through December 31, 2013

On January 1st 2013, Congress passed a bill that was later signed by President Obama that extended the Work Opportunity Tax Credit for hiring unemployed veterans until the end of December 2013 as part of the American Taxpayer Relief Act of 2012, the legislation that kept America from falling off the Fiscal Cliff. This tax credit was first enacted in November 2011 under the VOW to Hire Heroes Act of 2011 and gives tax breaks to companies that hire unemployed vets.

Under the new law, the amount of the tax credit will vary depending on how long the hired vet has been unemployed, has a service-related disability and has been discharged from active duty within a year.

Tax credit encourages businesses to hire veterans.

UPDATE: On May 25, 2007, the President signed into law the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28). This legislation extends the WOTC Program through August 31, 2011. This Act and the Tax-Relief and Health Care Act of 2006 (P. L. 109-432) signed into law on December 20, 2006, amend certain target group definitions, introduce new provisions that expand and streamline the WOTC Program, and make it easier for the business sector to participate. For example, P.L. 109-432 eliminated the Welfare-to-Work Tax Credit by merging it into the WOTC and making the Long-term TANF Recipient another WOTC target group.

WHAT'S NEW: The following statutory changes --introduced by P.L. 110-28 -- apply to new hires who begin work for an employer after May 25, 2007 and before September 1, 2011:

• the WOTC has been extended to cover individuals who begin to work for an employer before September 1, 2011,
• the Qualified Veteran group was expanded to include certain "disabled veterans," and
• the High-Risk Youth group was renamed and is now called: "Designated Community Resident." Its definition was expanded.

The changes introduced by P.L. 109-432 apply retroactively to individuals who began to work for an employer after December 31, 2005. They are as follows:

• the earnings test for ex-felons was eliminated;
• the maximum age for food stamp recipients was increased;
• the certification request filing deadline was increased;
• the welfare-to-work provisions were merged into the WOTC;

The consolidated WOTC for hiring most target group members can now be as much as:

• $2,400 for each new adult hire;
• $1,200 for each new summer youth hire,
• $4,800 for each new disabled veteran hire, and
• $9,000 for each new long-term family assistance recipient hired over a two-year period.

WHAT NEW HIRES CAN QUALIFY EMPLOYERS FOR WOTC?

• The new employee must belong to one of the following nine WOTC target groups:
  
  
  • Long-term TANF Recipient. A member of a family that:
    
    
    • Received or recently received Temporary Assistance to Needy Families payments for at least 18 consecutive months ending on the hiring date, or
    • Received TANF payments for any 18 months (whether or not consecutive) beginning after August 5, 1997, and the earliest 18-month period beginning after August 5, 1997 ended during the past 2 years, or
    • Stopped being eligible for TANF payments during the past 2 years because federal or state law limited the maximum time those payments could be made.
    
    
  • Other TANF Recipient. A member of a family that is receiving or recently received TANF benefits for any
    9-month period during the 18-month period ending on the hiring date;
    
    
  • Qualified Food Stamp Recipient. An 18-39 year old member of a family that received Food Stamps for the past 6 months, or received Food Stamps for at least 3 of the past 5 months;
    
    
  • Designated Community Resident. An 18-39 year old resident of one of the federally designated Empowerment Zones, Enterprise Communities, Renewal Communities, and for individuals who begin to work for an employer after May 25, 2007, this High-Risk Youth group has been renamed "Designated Community Resident" and expanded to include residents of Rural Renewal Counties;
    
    Note: All Round I Enterprise Communities including enhanced Enterprise Communities expired on December 31, 2004. Round II Enterprise Communities are still in existence as are all the Empowerment ;
    
    
  • Summer Youth Employee. A 16-17 year old EZ/EC or RC resident hired between May 1 and September 15;
    
    Note: All Round I Enterprise Communities (ECs) including enhanced Enterprise Communities expired on December 31, 2004. Round II ECs are still in existence as are all the EZs;
    
    
  • Qualified Veteran. A veteran who is a member of a family that is receiving or recently received Food Stamps for at least a 3-month period during the past 15 months; and for individuals who begin to work for an employer after May 25, 2007, the veteran group is expanded to include "disabled veterans" who are entitled to compensation for a service-connected disability and who, during the one-year ending on the hiring date, were: a) discharged or released from active duty in the U.S Armed Forces, or b) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these "disabled veterans" are capped at $12,000;
    
    
  • Vocational Rehabilitation Referral. An individual who completed or is completing rehabilitative services from a State certified agency, an Employment Network, or the U.S. Department of Veterans Affairs;
    
    
  • Qualified Ex-Felon. An individual who has been convicted of a felony and has a hiring date which is not more than one year after the last date on which he was so convicted or released from prison;
    
    
  • SSI Recipient. A recipient of Supplemental Security Income (SSI) benefits for any month ending during the past 60 day period ending on the hire date.
    
    
• MINIMUM EMPLOYMENT OR RETENTION PERIOD. All new adult employees must work a minimum of 120 or 400 hours. Individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. The WOTC amount an employer may claim depends on the hours the employee works. The credit is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours and 40% for those employed 400 hours or more.

HOW CAN EMPLOYERS PARTICIPATE IN THE WOTC?

To receive certification that a new employee qualifies the employer for this tax credit, the employer must:

• Complete page one of IRS Form 8850 by the day the job offer is made.
• Complete page 2 of IRS Form 8850 after the individual is hired.
• Complete either the one page ETA Form 9061 or Form 9062 as appropriate. For example:
  • If the new employee has already been conditionally certified as belonging to a WOTC target group by a state workforce agency or participating agency, complete the bottom part of ETA Form 9062, sign and date it, or
  • If the new employee has not been conditionally certified, the employer and the new employee must complete, sign and date ETA Form 9061.
  
  
• Mail the completed and signed IRS and ETA forms to the employer's state workforce agency within 28 days after the employee's employment-start date for all individuals who begin work for an employer on or after January 1, 2007. In Pennsylvania this would go to:

PA Department of Labor & Industry
Bureau of Workforce Investment
12 th Floor Labor & Industry Building
Harrisburg, PA  17120
(717)787-6915

If not in PA, contact your local Labor & Industry office to obtain a mailing address.

Form 8850 - Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits PDF

Form 8850 Instructions - Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits Instructions PDF

ETA 9061- Individual Characteristics Form Work Opportunity and Welfare-to-Work Tax Credits PDF

Form 5884 - Form 5884 - To Claim Work Opportunity Credit PDF

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