Work Opportunity Tax Credit

On December 18, 2015, President Obama signed the Omnibus Spending Bill H.R. 2029 and the PATH Act (Protecting Americans from Tax Hikes Act of 2015) into law, which provides a five-year extension to the Work Opportunity Tax Credit (WOTC) program.

Background

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. These groups include unemployed Veterans (including disabled veterans), food stamp recipients, residents of Empowerment Zones, ex-felons, and others.  New to WOTC is the “long-term unemployed” category. Long-term unemployed recipients are defined as individuals who are unemployed for not less than 27 consecutive weeks and received unemployment compensation for a period of time under state or federal law. This new category is effective for employees who start work after December 31, 2015.

What This Means for You As An Employer

Managing the WOTC program can be complicated as the tax credit employers can claim is dependent upon the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that can be earned. Adding a new category increases the potential for a greater number of applicants to qualify under the WOTC program.

What Actions You Should Take

Have job applicants screened for eligibility under the WOTC program, incorporating this new category into your process.

You should continue to submit Form 8850 for job applicants hired after December 31, 2015. In addition to Form 8850, employers need to submit the Department of Labor’s Employment and Training Administration (ETA) Form 9061 or ETA Form 9062 for any employees conditionally certified as belonging to a WOTC target group by a state workforce agency, vocational rehabilitation agency, or another participating agency. In August 2015, the Office of Management and Budget (OMB) extended the expiration of these forms through August 31, 2018. The forms with updated expiration dates can be found here, or you can submit expired 2015 forms, as the extension did not include any substantive edits to the 2015 forms.