Work Opportunity Tax Credit

Transcription

1 Work Opportunity Tax Credit 1

2 Want to skip ahead? Here s what we re going to cover Introduction to WOTC 3 Recent Developments 14 Action Required 16 Applicant Screening Process 17 2

3 IRC 51 The Work Opportunity Tax Credit is commonly referred to as WOTC. Enacted by Congress to provide incentives for hiring members of certain groups that face a barrier to employment. Voluntary program that has been around in some form since On average, 10 20% of new hires qualify. Average credit of $2,400 per qualified new hire. Offset to federal income tax liability, 1 year carry back and 20 year carry forward. 3

4 Non Veteran Target Groups Worked at least 120 hours but less than 400 hours Short Term TANF Recipient Up to $1,500 (25% of $6,000 of first year wages) Worked at least 400 hours Up to $2,400 (40% of $6,000 of first year wages) Long Term TANF Recipient N/A Up to $9,000 (over 2 years) (40% of $10,000 of first year wages and 50% of 10,000 of second year wages) SNAP (food stamp) Recipient Up to $1,500 (25% of $6,000 of first year wages) Up to $2,400 (40% of $6,000 of first year wages) Designated Community Resident (Age and lives in Empowerment Zone) Up to $1,500 (25% of $6,000 of first year wages) Up to $2,400 (40% of $6,000 of first year wages) 4

5 Non Veteran Target Groups Vocational Rehabilitation Referral Worked at least 120 hours but less than 400 hours Up to $1,500 (25% of $6,000 of first year wages) Worked at least 400 hours Up to $2,400 (40% of $6,000 of first year wages) Ex Felon Up to $1,500 (25% of $6,000 of first year wages) SSI Recipient Up to $1,500 (25% of $6,000 of first year wages) Up to $2,400 (40% of $6,000 of first year wages) Up to $2,400 (40% of $6,000 of first year wages) Summer Youth Employee (16 17 years old living in Empowerment Zone) Up to $750 (25% of $3,000 of first year wages) Up to $1,200 (40% of $6,000 of first year wages) 5

6 Veteran Target Groups Receives SNAP (food stamp) benefits Worked at least 120 hours but less than 400 hours Up to $1,500 (25% of $6,000 of first year wages) Worked at least 400 hours Up to $2,400 (40% of $6,000 of first year wages) Entitled to compensation for service connected disability: Hired 1year after leaving service Unemployed at least 6 months Worked at least 120 hours but less than 400 hours Up to $3,000 (25% of $12,000 of first year wages) Up to $6,000 (25% of $24,000 of first year wages) Worked at least 400 hours Up to $4,800 (40% of $12,000 of first year wages) Up to $9,600 (40% of $24,000 of first year wages) 6

7 Veteran Target Groups Unemployed: Worked at least 120 hours but less than 400 hours At least 4 weeks Up to $1,500 (25% of $6,000 of first year wages) At least 6 months Up to $3,500 (25% of $14,000 of first year wages) Worked at least 400 hours Up to $2,400 (40% of $6,000 of first year wages) Up to $5,600 (40% of $14,000 of first year wages) 7

8 Ineligible new hires Former employees. Majority business owners and their relatives or dependents. 8

9 Empowerment Zones - Tennessee Designated Community Resident: Any individual who is at least age 18 but not yet 40 on the hiring date and lives within an empowerment zone. Empowerment zone tax benefits were extended through December 31, 2016 (PATH Act of 2015). Knoxville only Empowerment Zone in TN. Memphis / Chattanooga Renewal Communities expired on December 31, 2009 and have not been renewed. Complete list of EZs can be found at 9

10 Tax Exempt Organizations Code Sec. 501(c) exempt organizations that employ qualified veterans may take advantage of the credit. The credit rate in such circumstances is reduced from 40 percent to 26 percent of qualified wages. These exempt organizations must use Form 5884 C to claim the credit. The credit is allowed against the tax exempt employer s Federal Insurance Contribution Act (FICA) tax obligation on wages paid to the veteran within one year of hiring. The liability on the organization s employment tax return is not reduced by the credit; rather, the credit is processed separately and the amount properly claimed is refunded to the exempt organization. ( Notice ). 10

11 28 Day Rule Employers must fill out IRS Form 8850, Pre Screening Notice and Certification Request, to pre screen employees before a job offer is made, and make a written request to their state workforce agency to certify the new hire as a member of a WOTC target group. Employers must complete US Department of Labor ETA Form 9061, the Individual Characteristics Form. Some states will also accept ETA Form 9062, Conditional Certification. IRS Form 8850 and ETA 9061 must be postmarked within 28 calendar days after the employee s start date for it to be considered timely filed. WOTC applications that are not submitted within 28 calendar days will be denied by the state workforce agency. 11

12 Final Determination The state workforce agency SWA will issue a final determination for each WOTC application. In some cases before that determination is made, assistance may be requested from the employer to obtain additional information or documentation. The final determination will indicate whether the new employee is certified as meeting the eligibility for one of the WOTC target groups. In those instances where the SWA is not able to verify that the new employee meets the eligibility, the SWA will issue a denial with an explanation. When a certification is received, then the employer can claim the tax credit with the IRS. 12

13 File for credit with the IRS After receiving a certification from the SWA, employers may file for the tax credit with the IRS. Generally, an employer elects to take the credit by filing IRS Form 5884, Work Opportunity Credit. A tax exempt organization that hires an employee in the WOTC veteran target group should use IRS Form 5884 C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans. 13

14 Recent Developments PATH ACT of 2015 Protecting Americans from Tax Hikes Act of 2015 Extended WOTC through 2019, including calendar year 2015 retroactively. Added a new category of long term unemployed starting in Provides a level of certainty over tax credit that didn t exist before. Congress used to approve annually at 11th hour. LBMC s 2016 PATH Act and WOTC Article Download Now! 14

15 Recent Developments IRS Notice IRS guidance issued on March 7, 2016 and temporarily suspended the 28 day rule. The deadline for filing with the state workforce agency has been extended to June 29, 2016 for employees hired on or after January 1, 2015 through May 31, Long term unemployed employees only qualify if they are hired after January 1, The deadline for filing with the state workforce agency has been extended to June 29, 2016, for qualified long term unemployment recipients hired on or after January 1, 2016, through May 31,

16 Action Required Call to Action With the addition of the long term unemployed and extension of the program, businesses who have not taken advantage of the WOTC program in the past should take another look. Now is the time to get a program in place and take advantage of the temporary suspension of the 28 day rule. Much easier to gather the required information during the application process, rather than after the fact Important to establish an ongoing WOTC plan through

17 Screening Process Integrates with existing onboarding process Call Center WOTC Web Portal Paper based ( , fax, or mail) or Combination of above our centralized system combines all methods into 1 tracking system Note: The IRS now accepts electronic signatures for the WOTC forms!! This means no forms need to be mailed in, so using the WOTC web portal & call center is easier & faster. 17

18 Screening Process Call Center Approach Minimal burden placed on hiring staff Give employee three minutes of privacy to call our bi lingual Call Center Impartial conversation Staff congratulates new hire, informs that screening is conducted per government requirements Discussion focuses on household needs, maintains dignity of employee Confirmation number is provided to return to hiring manager Ensure we screen all new employees If qualified, Form 8850 is generated and e signed by employee Virtually no forms to submit! 18

19 Screening Process Web Portal Approach Minimal burden placed on hiring staff Give employee three to 5 minutes of privacy to enter their data on our website Confirmation number is provided to return to hiring manager Ensure we screen all new employees If qualified, form 8850 is generated and e signed by employee Virtually no forms to submit! Applicant Log In: us.com/admin.php?wotcid=lbmcdemo Administration Log In: us.com/login.php?wotcid 19

20 Thank you for your time. I hope you ve enjoyed the WOTC guide and found it useful. Call us and let s talk about your company s WOTC plan. Brian McCuller, JD, CPA Partner in Charge State and Local Tax LBMC, PC bmcculler@lbmc.com 20