INTRODUCTION LEGISLATIVE BACKGROUND WOTC TAX CREDIT

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1 10/07

2 INTRODUCTION The Agency for Workforce Innovation (AWI) is pleased to provide this handbook to Florida employers who are interested in receiving tax credits against their federal income tax for hiring individuals from certain target groups identified in the handbook. The information provided is for educational purposes and to assist employers in applying for certification for the Work Opportunity Tax Credit. LEGISLATIVE BACKGROUND Disclaimer: The scope of this manual does not cover all the laws and regulations governing WOTC. It is to be used as a guideline in applying for certification to receive tax credit. For information purposes, the following acts provide the legislative authority for the Work Opportunity Tax Credit: The Small Business Job Protection Act of 1996 (Public Law ) The Taxpayer Relief Act of 1997 (Public Law ) The Taxpayer Relief Act of 1997 The Tax and Trade Relief Extension Act of 1998 (Public Law ) The Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law ) The Job Creation and Worker Assistance Act of 2002 (Public Law ) The Tax Relief and Health Care Act of 2006 (P.L ) The Small Business and Work Opportunity Tax Act of 2007 (P.L ) WOTC TAX CREDIT PURPOSE: The Work Opportunity Tax Credit (WOTC) was designed to provide a tax incentive to employers for hiring individuals from certain target groups to help them enter or re-enter the labor force. 2

3 HOW IT IS CALCULATED: Tax credits are computed on the first year wages of each qualified employee. The tax credit for each of the targeted groups identified below, with the exception of Qualified Summer Youth Employees, is calculated at a rate of 25% of the qualified first year s wages up to a maximum of $6,000 for employees working at least 120 hours (25% of $6,000 would = a $1,500 tax credit). For employees working at least 400 hours or more, the credit is calculated at the rate of 40% of the qualified first year wages up to $6,000 (40% of $6,000 would = a $2,400 tax credit). Qualified Disabled Veterans first year wages are $12, 000. WHO IS QUALIFIED: A definition of each of the nine target groups from which employers can hire and then request to receive the WOTC tax credit are as follows: A. Qualified IV-A, Recipients - This target group refers to any person who is certified by the Agency for Workforce Innovation as receiving or being a member of a family receiving Aid for Families with Dependent Children (AFDC) or Temporary Assistance to Needy Families (TANF) for any nine months during the 18 month period ending on the hire date. B. Qualified Veterans - This target group refers to any veteran certified by the Agency for Workforce Innovation as one who: is receiving or is a member of a family receiving assistance under a food stamp program authorized by the Food Stamp Act of 1977 for at least a three consecutive month period during the 15-month period ending on the hire date; and has served on active duty (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days; and did not have any day during the 60-day period ending on the hire date that was a day of extended active duty. The term extended active duty means a period of more than 90 days during which the individual was on active duty, other than active duty for training. 3

4 Disabled veterans who are entitled to a compensation for a service-connected disability and having a hire date which is not more than one year after discharge or release from active duty in the Armed Forces of have been unemployed for a period of six months or more (whether or not consecutive) during the one year period prior to the hire date. C. Qualified Ex-Felons - This target group refers to any person certified by the Agency for Workforce Innovation as one who: has been convicted of a felony under any statute of the United States or any state, and has a hire date that is not more than one year after the last date on which he/she was so convicted or was released from prison, and D. Designated Community Residents (DCRs) - This target group refers to any person certified by the Agency for Workforce Innovation as one who: is at least age 18, but not yet age 40, on the hire date, and has his/her principal place of residence within an Empowerment Zone (EZ), Rural County (RC) or Rural Renewal County (RRC) Empowerment Zones and Enterprise Communities are locations that participate in federally sponsored urban and rural projects that support community renewal and revitalization. For further information on EZ and EC, you may visit the following website: NOTE: In the case of a Designated Community Resident (DCR), the term qualified wages shall not include wages paid or incurred for services performed while the youth lived outside of the EZ, RC or RCC. E. Vocational Rehabilitation Referrals This target group refers to any person certified by the Agency for Workforce Innovation as one who: 4

5 has a physical or mental disability which, for that individual, constitutes or results in a substantial handicap to employment; and was referred to the employer either upon completion of, or while receiving rehabilitative services, pursuant to an Individualized Written Plan of Employment (IWPE)*; or was referred to the employer by a vocational rehabilitation program for veterans. * If the individual has completed the IWPE as of the hire date, employment must be within two years after completion of the IWPE. This now includes work plans that have been developed and implemented through an Employment Network. F. Qualified Summer Youth Employees This target group refers to any person certified by the Agency for Workforce Innovation as one who: worked for the employer between May 1 and September 15; and is at least 16 but not 18 years old on the hire date; and has not been employed by the same employer prior to the 90-day summer period between May 1 and September 15; and has his/her principal place of residence within an Empowerment Zone (EZ) or an Enterprise Community. Note: A directory of EZ/EC Zones can be located at the following website: Enter the address, zip code and click on Search to see if address is in an EZ/EC. The tax credit for the summer youth target group is calculated at the rate of 25% of the qualified first-year wages up to a maximum of $3,000 for employees working at least 120 hours (25% of $3,000 equals a $750 tax credit). For employees working at least 400 hours or more, the credit is calculated at the rate of 40% of the qualified first-year wages up to a maximum of $3,000 (40% of $3,000 equals a $1,200 tax credit). 5

6 G. Qualified Food Stamp Recipients This target group refers to any person certified by the Agency for Workforce Innovation as one who: is at least 18 but not yet 40 years old on the hire date; and for the six-month period ending on the hire date, is receiving or is a member of a family receiving assistance under a food stamp program authorized by the Food Stamp Act of 1977; or is an able-bodied adult without dependants who has received assistance for at least three months of a fivemonth period ending on the hire date but who is no longer eligible for food stamps under the work requirements of Section 6 (o) of the Food Stamp Act of H. Qualified Supplemental Security Income (SSI) Recipients This target group refers to any person certified by the Agency for Workforce Innovation as being one who: Is receiving SSI benefits under Title XVI of the Social Security Act for any month within the 60-day period ending on the hiring date. I. Qualified Long-Term Temporary Assistance for Needy Families (TANF) Recipients (Formerly referred to as the Welfare-to-Work Tax Credit) It provides a two-year tax credit for employers who hire employees certified by the Agency for Workforce Innovation as long-term family assistance recipients. The Tax Credit for hiring long-term family assistance recipients is as much as $9,000 per new hire: 40% of qualified wages for the first year of employment and 50% of qualified wages for the second year of employment. Qualified First Year Wages are wages that an employee earns during the first year. The maximum amount of wages to which the 40% tax credit may be applied shall not exceed $10,000, for a maximum first year credit of $4,000 (For hires working 400 hours or longer). Qualified Second Year Wages are wages that an employee earns during the second year. During the second year, the maximum amount of wages to which the 50% may be applied shall not exceed $10,000, for a maximum credit of $5,000. Under the consolidated WOTC tax credit, employers can claim up to $9,00 of combined tax savings per new hire. 6

7 Long-term Family Assistance Recipient refers to any person certified by the Agency for Workforce Innovation as one who: has received or is a member of a family that has received family assistance from Aid to Families with Dependent Children (AFDC) or Temporary Assistance for Needy Families (TANF) for at least an 18 consecutive month period ending on the hiring date; or has, after August 5, 1997, received or is a member of a family that received family assistance for a total of at least 18 months (whether or not consecutive) and who was hired within two years from the end of the earliest 18-month period from which they received assistance; or has had AFDC/TANF eligibility expire under a Federal or State law after August 05, 1997 and was hired within two years after the eligibility expired. Note: Long-term Family Assistance Recipient employees must work at least 400 hours before the employer is eligible to claim the tax credit. Disconnected Youth - This target group refers to any person qualified by the Agency for Workforce Innovation as being one who: Has attained age 16 but not yet 25 on the hiring date; not regularly attending any secondary, technical, or postsecondary school during the 6-month period preceding the hiring date; not readily employed during such 6-month period; and not readily employable by reason of lacking a sufficient number of basic skills. Unemployed Veteran - This target group refers to any person qualified by the Agency for Workforce Innovation as being one who: has served on active duty in the U. S. Armed Forces for more than 180 day; or has been discharged or released from active duty in the Armed Forces for a service-connected disability; has been discharged or released from active duty in the Armed Forces during the five-year period ending on the hiring date; and has received unemployment compensation under State of Federal law for not less than four-weeks during the one year period ending on the hiring date. WOTC FORMS, COMPLETION GUIDANCE, AND DOCUMENTATION REQUIREMENTS 7

8 IRS Form Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credits Internal Revenue Service (IRS) Form 8850 (Attachment 2) and Instructions, (Attachment 3). The IRS Form 8850 must be completed for the WOTC tax credit. Employers use the IRS Form 8850 to pre-screen and make a written request to the AWI, WOTC Unit, to certify an individual as a member of a targeted group or as a long-term family assistance recipient for purposes of qualifying for the WOTC tax credit. AWI has the responsibility of certifying and denying that an employee is a member of a targeted group or is a long-term family assistance recipient. AWI will issue a certification of eligibility to the employer and/or his representative or a letter requesting additional information when necessary. AWI will issue a letter of denial when the employee does not meet program criteria. Completion of the 8850: Each item listed on IRS Form 8850 must be completed and should be dated on or before the start date of employment. o A completed form is one that has been signed by both parties and contains all relevant detail for the particular target group for which the employer is seeking a tax credit. IRS Form 8850 must contain the original signature of both the applicant and the employer. o A receipt of a copy or a facsimile transmission of a completed IRS Form 8850 does not satisfy the statutory requirement of an original signature. IRS Form 8850 is a two-sided form. Both sides must be completed and the form must be postmarked by the United States Postal Service within 28 days of the start date of employment. ETA Form Individual Characteristics Form (see attached ETA-9061) and Instructions, Attachment 4). The ETA-9061 is used to identify the applicant within a specific target group. The ETA-9061 may be completed by either the employee or the employer. The signature on the ETA-9061 does not have to be an original signature. It is suggested that the employer complete the ETA-9061 with assistance from the employee and mail it with the IRS Form Completion of the 9061: 8

9 Each item on the 9061 should be completed. o A completed form is one that has been signed by the employee, employer or employer representative and has a yes marked on at least one target group. The signature of the party completing the 9061 does not have to be an original signature. Documentation: Documentation is required for some target groups (Attachment 5). When required and available for a particular target group, it should be submitted with the If it is not possible to obtain the documentation within a time frame that will allow submission of the 8850 to meet the 28-day deadline, submit the 8850 and 9061 without the documentation and wait to receive a letter from WOTC staff requesting the documentation. (Waiting to receive the letter before sending the documentation will insure that we have received the 8850 and 9061 and entered it into our system). Note: When submitting the 8850, 9061 and any required documentation, please submit it with the 8850 on top, followed by the 9061 and then the documentation. Such order facilitates processing. Also note that after starting work, the employee must work the minimum number of hours required for the WOTC tax credit. Then, once the required hours are met and the employer has the letter of certification, he/she must file IRS Form 5884 with the IRS to obtain the Work Opportunity Tax Credit. For further information regarding these forms and other tax information, contact the IRS at Mail Both the IRS Form 8850 and the ETA-9061 Form to: Agency for Workforce Innovation Work Opportunity Tax Credit MSC #G-300, The Caldwell Building 107 East Madison Street Tallahassee, FL Important Note: If the postmark on the envelope or wrapper for the submitted IRS Form 8850 is missing or is not legible, and the Florida WOTC unit has no evidence of receipt within the 28-day deadline, the employer and/or his/her authorized tax agent has the burden of proving the time when the postmark was made. Also, if the envelop or wrapper holding the IRS Form 8850 has a postmark made by the United States Postal Service (USPS) in addition to another postmark (postage meter, etc.), the USPS postmark will be the date of record. If no acceptable evidence as noted can be provided when a postmark date is missing or is not legible, a denial letter will be issued. A denial letter will also be issued if a USPS postmark indicates a date past the 28-day deadline. In the same manner, if the WOTC unit has no evidence of having received an application and the employer or his/her representative sends in a copy of the 9

10 application, the burden of proof for the time the original postmark was made is on the employer and/or the authorized representative. Also, if there is evidence that an application has been received but there is no indication of the postmark date, the burden of proof for the time the postmark was made is on the employer and/or the authorized representative. Where to get the IRS Form 8850 and the ETA-9061? Both the IRS Form 8850 and the ETA Form 9061 may be downloaded from the Agency for Workforce Innovation homepage at: IRS Form 8850 may also be requested from the IRS Forms Distribution Center by calling1-800-tax FORM ( ) or by going to the IRS Homepage at The ETA Form 9061 may also be requested by going to the United States Department of Labor Homepage at Important Note Please be advise that the Work Opportunity Tax Credit Handbook is to be used as a general guide and is not inclusive of all laws and regulations governing The Work Opportunity Tax Credits. For more complete details and information, please visit the U.S. Department of Labor website at: QUESTIONS OR CONCERNS Should you have any questions or concerns regarding the Work Opportunity Tax Credit or the information contained in this handbook, please contact the WOTC Coordinator at TTY (via the Florida Relay Service): 711. ATTACHMENTS 10

11 (1) IRS Form 8850 located at: (2) Instructions for IRS Form 8850 located at: (3) ETA Form 9061 located at: (4) Documentation Guidance Information located at: The WOTC Program is an Equal Opportunity Program. Auxiliary aids and services are available upon request to individuals with disabilities. 11