The Latest Work Opportunity Tax Credit Developments

On February 2, 2015, President Obama released the Fiscal Year 2016 federal budget proposal, which included several payroll related items which are currently under consideration by the U.S. Congress. One item up for deliberation is a proposal to permanently extend the Work Opportunity Tax Credit (WOTC), which would apply to wages paid to qualified individuals who started working for an eligible employer after December 31, 2014.

The WOTC is a tax incentive program which is designed to encourage businesses to recruit and retain staff from specific population groups, such as veterans, individuals receiving social assistance, and qualified youth. The tax credit is one initiative to raise the employment rate for selected groups that may have faced what the Department of Labor calls "significant barriers to employment." For each individual that's hired, a business may qualify for a tax credit up to a maximum of $9,600 per individual during their first year of employment.

As the Department of Labor highlights, "WOTC helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability."

The President's proposal would also make important changes for individuals who begin work after December 31, 2015, by expanding the definition of a qualified veteran. The qualified veteran category would also include disabled veterans beginning G.I. Bill benefits at a qualified educational institute or training program and who are hired by the company within six month of leaving the program. The proposed budget also includes suggestions for modifying how the credit is calculated.

The budget proposal represents the latest in a number of recent moves related to WOTC. In December 2014, The Tax Increase Prevention Act of 2014 extended the program for qualified workers hired through December 31, 2014. The IRS subsequently published a notice of transition relief for WOTC, which allows employers some extra time to submit requests for 2014 WOTC certification. The current relief period permits employers to submit requests for certification until April 30, 2015, for members of target groups who began working between January 1, 2014 and December 31, 2014.

Administration of WOTC programs requires vigilant screening, follow up and documentation. As a result, gaps in these areas cause many employers to fail to maximize their WOTC totals or forgo the program altogether. The right partner can help. Paychex will continue to cover the evolution of this important topic. Check back frequently for updates.