By Stacey May, Director of Tax Credits
With the passage of the Protecting Americans from Tax Hikes (PATH) Act in December of 2015, businesses of all sizes can now take advantage of a lucrative tax credit for hiring the long-term unemployed. The credit is a new category under the Work Opportunity Tax Credit (WOTC), which is designed to provide tax savings to businesses for hiring historically underemployed and disadvantaged groups of individuals such as veterans, those on food stamps, social security income and ex-felons, among others.
Here’s how it works:
- When individuals are hired, they fill out two forms which will identify whether they fit into a WOTC category.
- These forms are sent into state workforce agencies that determine whether applications meet certain requirements and issue tax credit certificates.
- Once the qualified individuals work a certain amount of hours and earn wages, credit amounts are determined and range from up to $2,400 to $9,600 depending on the individual hired.
For the new long-term unemployed category, individuals hired after January 1st, 2016 may qualify if:
- On the day before the individual begins work for the employer, or, if earlier, the day the individual completes the IRS Form 8850 is in a period of unemployment that is not less than 27 consecutive weeks, and
- Includes a period (which may be less than 27 weeks) in which the individual received unemployment compensation under state or federal law.
Additionally, the PATH Act extended WOTC as a whole through 2019, providing significant stability to the program and assuring an atmosphere of certainty for businesses hiring potentially qualified individuals.
Recently, the IRS provided transitional relief to all applicants, suspending form submission timeliness requirements (28 days after hire) that are normally in place. What this means for businesses:
- For all WOTC groups except the long term unemployed, businesses can submit applications before June 29th, 2016 for any individuals hired between January 1st, 2015 and May 31st 2016.
- For the long-term unemployed group, businesses can submit applications before June 29th, 2016 for any individuals hired between January 1st, 2016 and May 31st 2016.
This is by far the best time to get involved in the WOTC program in recent memory. Not only can businesses apply for the credit for all individuals hired in 2015 through today, but the new long-term unemployed category significantly broadens the program’s reach, with millions of additional individuals now potentially qualified.
Organizations with over 100 employees and high turnover of hourly employees tend to receive the biggest benefit. Sample industries include:
- Call centers
- Health care
- Restaurants & fast food chains
- Convenience stores
To take advantage of WOTC, be sure to engage a tax credit specialist with a proven history of efficiently administering the program for clients and a solid relationship with individual state workforce agencies. This will make recouping tax credits easier for you and your staff.