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DOL Offers Guidance on Administering the Work Opportunity Tax Credit

Payroll
Article
01/30/2017

Want to add eager workers to your company, reduce the number of long-term unemployed and get paid for the privilege? The federal government offers the Work Opportunity Tax Credit (WOTC) to companies that hire and retain military veterans and other designated groups that face significant barriers to employment. In January 2017, the U.S. Department of Labor (DOL) released comprehensive guidance on how to administer the WOTC — a voluntary program — with a particular focus on requesting and receiving WOTC tax credit for 2016.

In general, your business can earn a tax credit equal to 25 percent or 40 percent of a new hire’s first-year wages, up to the maximum for that worker’s target group. You earn 25 percent if the employee works at least 120 hours, and 40 percent if he or she puts in at least 400 hours. Use the WOTC calculator to learn how much your business can reap.

The DOL notes that employers claim about $1 billion in tax credits each year under the WOTC.

The federal government offers the Work Opportunity Tax Credit (WOTC) to companies that hire and retain military veterans and other designated groups that face significant barriers to employment.

Businesses That Can Claim the WOTC

Any private-sector business hiring workers from eligible target groups may apply for the WOTC. In addition, certain tax-exempt organizations that hire new employees from the WOTC veterans target group may claim tax credits. The agency doesn’t limit the number of individuals a business can hire to qualify for the tax credit. Applying for the WOTC requires just a few simple steps.

Highlights of the WOTC Guidance

Determining eligibility for qualified long-term unemployment recipients

Because many people will have exhausted their unemployment compensation before the date they sign Internal Revenue Service (IRS) Form 8850, an employer must file a completed and signed national Self-Attestation Form with a State Workforce Agency as part of each certification request. The DOL Employment and Training Administration (ETA) may also require your company to submit ETA Forms 9061 or 9062.

Obtaining unemployment insurance claims and wage records

Each State Workforce Agency will have to form an agreement with its state unemployment insurance agency that includes provisions to protect data from unauthorized access and reimburse costs.

Qualified wages and tax credit caps applicable to long-term unemployed individuals

The DOL caps qualified wages at $6,000 for certified new hires categorized as long-term unemployment recipients during their first year of employment, for a maximum tax credit of up to $2,400. The size of the tax credit depends on the number of hours the new employee works (i.e., how she or he meets the provisions of the Minimum Employment or Retention Period).

For WOTC-certified new hires working at least 120 hours, employers can claim 25 percent of first-year wages paid up to $6,000, for a maximum tax credit of up to $1,500. For WOTC-certified new employees working 400 hours or more, employers can claim 40 percent of first-year wages up to $6,000 for a maximum tax credit of up to $2,400.

Businesses may request certifications for individuals who started work on or after Jan. 1, 2016.

Your business can earn a tax credit equal to 25 percent or 40 percent of a new hire’s first-year wages, up to the maximum for that worker’s target group.

Transition relief for employer submission of Form 8850

If your company hired long-term unemployed individuals between Jan. 1 and Aug. 31, 2016, you can receive specified filing relief from the IRS if you submitted Form 8850 to the State Workforce Agency to request certification no later than Sept. 28, 2016. However, the DOL will not make an exception to the 28-day filing requirement for individuals hired after Sept. 1, 2016.

WOTC Helps Businesses Help the Long-Term Unemployed

It’s worth noting that the expansion of the WOTC tax credit to assist the long-term unemployed received support from the Strategic Services on Unemployment & Workers’ Compensation (UWC). The UWC is the only broad-based, nationwide association that represents the interests of the business community on unemployment insurance and public policy issues for workers’ compensation. The expanded WOTC is intended to help reduce the number of Americans out of work for extended periods, and lower the cost of hiring for employers.

 

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Jenine Hallings is a compliance risk manager for Paychex. Jenine’s team is responsible for research, analysis, and communication of legislative and regulatory changes impacting the company, its clients, and partners. Her team manages Paychex's relationships with various federal and state tax agencies on behalf of clients. She also represents Paychex in key industry consortiums to ensure the company is abreast of regulatory trends and developments. Jenine has been with Paychex for over 20 years and has extensive experience on a broad range of payroll tax matters.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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