By Mark G. Kmiecik
Private sector employers are now further incentivized for their efforts in hiring otherwise disadvantaged workers. The IRS recently issued guidance extending the time employers may claim a Work Opportunity Tax Credit (“WOTC”) of $2,400 or more for each qualified employee hired in 2014. Because the Tax Increase Prevention Act of 2014 (see D&K’s Client Alert, President Signs Tax Increase Prevention Act of 2014: Incentives for Employers and Individuals) extended the WOTC retroactively for the 2014 tax year, employers need additional time to comply with the certification requirements of WOTC. Notice 2015-13, summarized below, provides employers guidance on compliance aspects of the WOTC Act. To establish a grace period, the IRS waived the 28-day deadline for submitting IRS Form 8850 (the WOTC Pre-screen Notice) for qualifying employees hired in 2014 and extended the deadline for submitting the applications for employees to April 30, 2015. Already filed your 2014 tax return? It can be amended to claim your WOTC.
WOTC was enacted to encourage for-profit employers to hire certain individuals who faced employment challenges. It is designed to steer employers towards hiring individuals from certain targeted groups. Employers do not have to create new jobs to earn the credit. With some exceptions, employers may take the credit during the first year of employment. Generally, the credit amounts to 40 percent of the first $6,000 of qualified wages paid to each individual of a targeted group employed for 400 or more hours of service. Employers are only entitled to a credit of 25 percent of the first $6,000 of qualified wages for employees working between 120 and 400 hours. Employees working below 120 hours a year do not qualify for the credit.
Employers who hired individuals certified from the following eligible groups after January 1, 2014 and before December 31, 2014, are entitled to the WOTC:
- Members of families receiving benefits under the Temporary Assistance to Needy Family’s program for any nine months during the 18-month period ending on the hiring date;
- Qualified veterans (those facing certain unemployment, disability and socioeconomic conditions);
- Qualified food stamps recipients (18 to 39 year olds who are members of families receiving food stamp benefits for the six month period before the hire date, or receiving benefits for at least three of the last five months before the hiring date but lost the benefits for failure to comply with the program’s work requirements.);
- Designated community residents (18 to 39 year olds who live in an empowerment zone or rural renewal county);
- Summer youth employees (16 to 17 year olds hired for any 90 day period between May 1 and September 15 who live in an empowerment zone or rural renewal county);
- Qualified ex-felons (hired within one year of being released from prison);
- Vocational rehabilitation referrals (individuals with physical or mental disabilities that result in substantial handicap to employment and are referred to an employer upon completion of rehabilitative services); or
- Qualified supplement security income (“SSI”) recipients (individuals who received benefits for any month ending within 60 days before the hiring date).
To comply with the safe harbor rule in Notice 2015-13, Wisconsin employers may apply for the WOTC by filing the following documentation (original signatures are required) by April 30, 2015 with the Department of Workforce Development (DWD), Federal Tax Credits, Rm. G100, 201 E. Washington Ave., PO Box 7972, Madison WI 53707-7972:
- Complete IRS Form 8850, “Work Opportunity Credit Pre-Screening Notice and Certification Request.” The employee should complete the front side, and the employer must complete the back side of the form; and
- Complete the ETA Form 9061 (Individual Characteristics form) if the employee does not have a completed ETA Form 9062 from a service provider.
Calculation of WOTC
Wisconsin employers may claim up to 40% of the first $6,000 in qualified first-year wages. This generally translates to a maximum credit of $2,400 per employee hired (see exceptions below). For employees hired in 2014, the tax credit (except for long-term family assistance recipients and qualified veterans) is calculated as follows:
- 25% for those employed at least 120 hours (maximum credit $1,500);
- 40% for those employed at least 400 hours ( maximum credit $2,400); and
- No credit allowed for second-year wages.
For employees certified as long-term family assistance recipients, employers can apply for the following tax credits for the first two years of employment (wages are capped at $10,000):
- 25% for those employed at least 120 hours ($2,500 maximum credit);
- 40% for those employed at least 400 hours the first -year ($4,000 maximum credit);
- 50% for those employed at least 400 hours the second year ($5,000 maximum credit); and
- A maximum credit of $9,000 for both years.
For employees certified as disabled veterans discharged within a year, employers can apply for the following tax credits (wages are capped at $12,000):
- 25% for those employed at least 120 hours but less than 400 hours ($3,000 maximum credit); and
- 40% for those employed at least 400 hours ($4,800 maximum credit).
For employees certified as unemployed disabled veterans, employers can apply for the following tax credits (wages are capped at $24,000):
- 25% for those employed at least 120 hours but less than 400 hours ($6,000 maximum credit); and
- 40% for those employed at least 400 hours ($9,600 maximum credit).
For employees certified as unemployed veterans, employers can apply for the following tax credits (wages are capped at $14,000):
- 25% for those employed at least 120 hours but less than 400 hours ($3,500 maximum credit); and
- 40% for those employed at least 400 hours ($5,600 maximum credit).
By following the safe harbor rule in Notice 2015-13, Wisconsin employers may apply for and claim the WOTC for each qualified employee hired and employed for a minimum of 120 hours during 2014. WOTC is just one of the many tax credits extended by the Tax Increase Prevention Act of 2014. If you have any questions as to whether your business is eligible for the WOTC for the 2014 tax year or have any questions with respect to the many tax credits extended by the Tax Increase Prevention Act of 2014, please contact your Davis & Kuelthau attorney or the author, Mark G. Kmiecik, at 414.225.1406 / firstname.lastname@example.org.