IRS Updates WOTC Work Opportunity Tax Credit Guidelines

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The Internal Revenue Service released updated information on the Work Opportunity Tax Credit to help employers cope with a tight labor market and after a scathing investigative report into how the longstanding tax credit is being abused.

The updates, released Monday by the IRS, include information about the screening and certification process. To satisfy a candidate’s screening requirement, no later than the day an offer of employment is made, a screening notice (Form 8850, Notice of Screening and Application for Certification for Work Opportunity Credit) must be completed by the job seeker and the employer.

An earlier version of tax relief, the Targeted Employment Tax Credit, did not contain a screening requirement. In enacting the WOTC to replace the TJTC in 1996, Congress included the requirement that employers screen applicants for employment before or on the day of the job offer. When it did, Congress pointed out that the WOTC is designed to encourage the hiring and employment of certain classes of workers. A recent report by the investigative news organization, ProPublica, found that the WOTC was often claimed by temp agencies that hired convicted felons as workers and quickly fired them.

Headquarters of the Internal Revenue Service in Washington, D.C.

Samuel Corum/Bloomberg

After screening a job candidate, the IRS said the employer must then seek certification by submitting Form 8850 to the appropriate state employment agency no later than 28 days after the employee begins work. Other requirements and further details can be found in the instructions PDF to Form 8850.

WOTC has 10 designated categories of workers. The 10 categories are:

  • Qualified recipients of IV-A Temporary Assistance for Needy Families;
  • Certain veterans, including unemployed or disabled veterans;
  • Formerly incarcerated or those who have already been convicted of a crime;
  • Designated Community Residents living in Empowerment Areas or Rural Renewal Counties;
  • Vocational rehabilitation referrals;
  • Young summer employees living in Empowerment Zones;
  • Food stamp recipients of the Supplemental Nutrition Assistance Program;
  • Beneficiaries of Supplemental Security Income;
  • Beneficiaries of long-term family support; and
  • Qualified long-term unemployment beneficiaries.

Last month, the IRS issued a to remark give more leeway to employers to claim the WOTC to hire people in disadvantaged backgrounds who face significant barriers to employment for jobs in summer youth programs and community programs (see the story).

Although the credit is generally not available to tax-exempt organizations, a special provision allows them to claim the WOTC against the employer’s share of the Social Security tax for hiring qualified veterans. These organizations can claim the credit on Form 5884-C, Job Opportunity Credit for qualified tax-exempt organizations that hire qualified veterans. For more information, visit the WOTC page on IRS.gov.

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