If your business hires individuals who are members of “targeted groups” under the federal work opportunity tax credit (WOTC), such as veterans and federal assistance recipients, recent legislative changes and related guidance from the IRS could save your business money. The WOTC allows businesses that hire members of targeted groups listed in the law to take a credit against federal income taxes for up to 40 percent of the first-year wages paid to those employees, up to $9,600 per qualifying employee. The credit delivers significant savings to employers in many industries, particularly manufacturers, franchise owners, and retailers.
The WOTC expired at the end of 2014, but was recently extended retroactively through 2019 and expanded to include long-term unemployment recipients. As of January 1, 2016, first-year wages paid to a new employee that had been unemployed for longer than 27 weeks may also be included in the calculation of an employer’s credit.
Businesses that hire a qualifying employee generally must complete pre-screening forms on or before the day the individual is offered employment and submit the forms to their respective state workforce agency up to 28 days after the individual begins work in order to claim the credit. If your business hired or hires qualifying individuals any time from January 1, 2015, through May 31, 2016, the IRS has recently announced that you have until June 29, 2016 to submit the appropriate forms. Starting June 1, 2016, the deadline reverts to the rolling 28-day period that starts on the date the employee begins work.
Unfortunately, many companies hire eligible individuals without realizing that they are part of a targeted group. In order to make sure your business is able to claim the full amount of credit it has earned, you may want to incorporate the pre-screening forms into your hiring process.
The WOTC can deliver significant tax savings for employers whose workforce includes the targeted groups. If you believe that your business may have hired employees that qualify for this credit, or you would like to learn about what targeted groups may qualify, please contact your Plante Moran engagement team for more information.
Please read the full IRS WOTC guidance and transition relief notice for further information.
The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.