The Work Opportunity Tax Credit and Second Chance Hiring

Whether it is manufacturing, healthcare, logistics, farming, or the tech industry, employers all over the country are scrambling to find and retain qualified workers. The Federal Work Opportunity Tax Credit (WOTC) program is an option to help facilitate contact between employers who are experiencing labor shortages with those individuals who struggle to find employment. The WOTC provides economic incentive to employers to hire workers from targeted groups. (WOTC Fact Sheet)

The WOTC has been in existence since 1996, and over the years additional categories of eligibility have been added. The program is currently authorized through December 31, 2019. While the future is unclear for WOTC after 2019, employers should explore utilizing it for as long as possible in order to obtain the available tax credit.

Employers can earn a tax credit up to $9,600 per eligible worker. All private sector employers are eligible for the credit, and the credit can be used against the employer’s share of social security tax. There is no limit on the number of workers an employer can hire to qualify for the credit, but there is a maximum credit for each eligible group of workers. Relatives and dependents of the employer, former employees, and majority business owners are not eligible to receive the credit.

The eligible worker categories are:

• Military Veterans.
• Supplemental Nutrition Assistance Program recipients.
• Temporary Assistance for Needy Families recipients.
• Residents living in designated economically struggling communities. (state workforce agencies)
• Supplemental Security Income recipients.
• People with disabilities who have completed or are completing vocational rehabilitation.
• Ex-felons.

Applying for WOTC is a relatively simple process, but as always, dealing with the government can be a lengthy process. Prior to filing with the IRS for the credit, the employer must request and receive certification from its state workforce agency stating the new hire is a member of at least one of the WOTC target groups. Once that certification is received and the employee has worked at least 120 hours during the first year, the employer may file for the tax credit. The five steps are as follows:

• First, the employer must fill out IRS Form 8850 for prescreening and certifying the new hire for WOTC.
• Second, the employer must complete the ETA Form 9061 which lists the individual characteristics of the person, and identification documentation may be needed.
• Third, the employer must submit all forms and documents to the state workforce agency within 28 calendar days after the employee starts employment. Late submissions will be denied.
• Fourth, the workforce agency will issue a final determination (or request additional information).
• Fifth, once the certification is received, the employer can then claim the tax credit with the IRS after 120 hours of employment in the first year.

In addition, employers should remember that victims of domestic abuse who seek to leave an abusive relationship may well fall within the targeted groups that have been determined to have “significant barriers to employment.” Employers should contact directly the women and family shelters in their respective areas and work directly with the facility to identify a victim of domestic abuse who is qualified, needs a job, and can qualify for the tax credit.

Watch for an additional e-alert on issues related to Second Chance Hiring.