Work Opportunity Tax Credit: What Employers Must Know

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The federal government has a tax credit program called the Work Opportunity Tax Credit (WOTC). This program offers financial incentives to businesses that hire people from certain underrepresented groups.

Recently, the WOTC program underwent changes that employers need to be aware of in order to take advantage of the tax credits available. This article provides an overview of the recent changes to the WOTC program and explains how they may affect employers.

Additionally, we provide recommendations for employers on how to maximize their WOTC benefits. It is important for employers to stay up-to-date on WOTC changes in order to take advantage of tax credit opportunities. This will also ensure that employers are in compliance with new certification requirements.

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Recent Changes to the Work Opportunity Tax Credit Program

A.   Extension of WOTC Program Through December 31, 2025

On December 27, 2020, the WOTC program was extended through December 31, 2025. This extension was part of the Consolidated Appropriations Act of 2021. It provides employers with an opportunity to continue taking advantage of the tax credit program for the next four years.

B.   Changes to Target Groups Eligible for WOTC

The Consolidated Appropriations Act of 2021 made several changes to the target groups eligible for WOTC. Basically, these changes are as follows:

1. Addition of long-term unemployed: The target group now includes individuals who have been unemployed for a period of at least 27 consecutive weeks and received state or federal unemployment benefits for some or all of that time.
2. Addition of individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits: Individuals who received SNAP benefits for at least 6 months out of the past year are now eligible for the WOTC.
3. Removal of qualified veterans target group: The qualified veterans target group was removed from the WOTC program on January 1, 2021. However, employers can still claim a tax credit for eligible veterans hired on or before December 31, 2020.
4. Addition of individuals receiving qualified long-term unemployment benefits: Individuals who received qualified long-term unemployment benefits for a period of at least 26 weeks are now eligible for the WOTC.

C.   Changes to Certification Requirements

The WOTC certification process has been updated with the following changes:

1. Electronic submission of Form 8850: Beginning on October 9, 2021, employers must submit Form 8850 electronically to their respective state workforce agency in order to request certification for WOTC-eligible employees.
2. New certification requirements for employees hired on or after October 9, 2021: For employees hired on or after October 9, 2021, employers must submit the certification request no later than 28 days after the employee’s start date. Employers must also obtain the employee’s signature on the pre-screening notice and certification request forms within 28 days of the employee’s start date.

Implications for Employers

The recent changes to the WOTC program have several implications for employers. These implications include:

A.   Increased Tax Credit Opportunities for Hiring Certain Individuals

With the addition of new target groups such as the long-term unemployed and individuals receiving SNAP benefits, employers now have an increased opportunity to claim tax credits for hiring individuals from these groups.

B.   Adjustments to Hiring Practices to Take Advantage of New Target Groups

Employers need to adjust their hiring practice. Doing so will ensure that they are identifying and hiring individuals from the new target groups eligible for WOTC. This may involve reviewing job postings and outreach efforts to target specific groups of individuals.

C.   Importance of Following New Certification Requirements

With the new certification requirements, it is important for employers to ensure that they are following the correct procedures for submitting certification requests and obtaining employee signatures. Failure to comply with these requirements may result in the denial of tax credits.

Employers who are not aware of these changes or who do not take steps to adjust their hiring practices and follow the new certification requirements may miss out on tax credit opportunities. Moreover, they could risk non-compliance. It is therefore important for employers to stay informed of changes to the WOTC program. Additionally, employers must take appropriate actions to ensure compliance and maximize their tax credit benefits.

How to Maximize WOTC Benefits

To maximize the benefits of the WOTC program, employers should take the following steps:

1. Understand the target groups eligible for WOTC: Employers should review the WOTC target groups and understand which individuals qualify for the tax credit. Employers should also be aware of any changes to the target groups, as eligibility requirements can change over time.

2. Screen job applicants for eligibility: Employers should implement a screening process to identify job applicants who may be eligible for WOTC. This may involve asking applicants questions about their eligibility or using an online screening tool.

3. Follow the new certification requirements: Employers should ensure that they are following the new certification requirements for employees hired on or after October 9, 2021. This includes submitting Form 8850 electronically and obtaining the employee’s signature on the pre-screening notice and certification request forms within 28 days of the employee’s start date.

4. Keep accurate records: Employers should keep accurate records of employee certifications and other documentation related to the WOTC program. This will help employers avoid issues with audits and ensure that they are receiving the maximum tax credit benefits.

5. Consult with a tax professional: Employers should consult with a tax professional to understand the tax implications of the WOTC program and ensure that they are maximizing their tax credit benefits. A tax professional can also help employers stay informed of any changes to the WOTC program.

By taking these steps, employers can maximize their WOTC benefits. They can also take advantage of the tax credit program to hire individuals who may have faced barriers to employment.

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Conclusion

The recent changes to the Work Opportunity Tax Credit (WOTC) program have important implications for employers. With the program’s extension through December 31, 2025, and the addition of new target groups eligible for the tax credit, employers have an opportunity to hire a diverse range of individuals. Moreover, they can receive tax credits for doing so.

To maximize the benefits of the WOTC program, employers should take steps to understand the target groups eligible for the tax credit. Furthermore, they must screen job applicants for eligibility, follow the new certification requirements, and keep accurate records. Finally, they need to consult with a tax professional.

By taking these actions, employers can support their business goals while also helping individuals who may have faced barriers to employment. The WOTC program can be a win-win for employers and job seekers alike. By staying informed and taking appropriate actions, employers can make the most of this valuable tax credit program.