Money on the Table—Employment Tax Credits

work opportunity tax creditIn late December, President Obama formalized the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act).  Among the many taxpayer-friendly provisions in that act was the retroactive extension of the Work Opportunity Tax Credit (WOTC) program through December 31, 2019.  The WOTC is designed to provide credits to taxpayers who hire members of one of the following target groups:

  • Qualified Veterans
  • TANF (Temporary Assistance for Needy Families) Recipients
  • SNAP (food stamps) Recipients
  • Designated Community Resident (DCR): Empowerment Zones/Rural Renewal Counties
  • Vocational Rehabilitation Referral
  • Ex-Felons (conviction or prison release date <1 year from hire date)
  • Supplemental Security Income Recipients
  • Qualified Long-Term Unemployment Recipients (new for 2016)

In order to qualify for the WOTC, taxpayers must undergo a relatively regimented pre-screening and certification process, the first step of which is the filing of Form 8850 – Pre-Screening Notice and Certification Request – with their respective state workforce agencies within 28 days of the date the target group member begins work.  Unfortunately, due to the retroactive nature of the WOTC extension, there could be several recent hires that would qualify for the credit that now have delinquent paperwork.  Never fear.  The IRS has issued guidance that provides employers additional time beyond the 28-day deadline for submitting Form 8850.  An employer will be considered having timely submitted Form 8850 as follows:

  • For targeted groups (other than qualified long-term unemployment recipients) – Form 8850 is considered timely if submitted on or after January 1, 2015, and on or before May 31, 2016.
  • For new hires of qualified long-term unemployment recipients on or after January 1, 2016, and on or before May 31, 2016 – Form 8850 is considered timely if submitted no later than June 29, 2016.

The certification process can be time-consuming, particularly considering the backlog of certifications that is likely to arise due to these transitional provisions.  It is imperative that the employer receives the certification before claiming the credit.

Empowerment Zone Employment Credit

Also available for 2015 and 2016 is the Empowerment Zone Employment Credit.  This credit is calculated by taking 20% of wages paid by employers to a qualified full-time or part-time employee.  The credit is limited to the first $15,000 of wages for 2015.  Qualifying employees are those who meet both of the following criteria:

  • Perform substantially all of the services for that employer within an empowerment zone in the employer’s trade or business.
  • Have their principal residence within that empowerment zone while performing those services.

As noted above, the employee must both live and work in an empowerment zone, so this credit is not as broadly applicable as the WOTC; however, there are several empowerment zones in both rural and urban areas, so opportunities are out there.

Other Opportunities

There are other, more strategically focused incentives and credits out there offered by the IRS.  Various states also afford opportunities for credits and incentives for hiring employees who meet certain criteria.  Some states provide a wide range of incentives—from grants to help cover training/retraining expenses to tax liability offsets.  If your business has recently hired new employees, or plans additional hires in the coming months, make sure you are not leaving money on the table.  Contact one of our executives below, (800) 270-9629, to discuss your alternatives.


Mark Brumbelow

Mark Brumbelow

Senior Manager

Eric Elliott

Eric Elliott

Principal

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