In the book “The Cobler of Preston,” Christopher Bullock wrote the famous line, “’Tis impossible to be sure of anything but death and taxes.” As sure as we are about paying our taxes, one thing we’re often unsure about is getting tax relief. That’s why I wanted to share some information about a tax credit opportunity I learned about.
The Work Opportunity Tax Credit (WOTC) is not a new program. It’s a Federal tax credit available to employers for hiring individuals from certain target groups. But did you know that it was on hiatus in 2014, and after a short renewal, is in hiatus again? It was recently re-enacted retroactively. So businesses have a short window to screen applicants and apply for this credit. And by short window, I mean the end of this month (April).
Since I’m not current on the details of this re-enactment, I asked Ezrie Yellin, product manager in the tax credits and incentives division of Equifax Workforce Solutions. They have helped us before with updates to the Form I-9 and understanding the Fair Credit Reporting Act (FCRA).
Ezrie, for our readers who might not be familiar, can you briefly describe the Work Opportunity Tax Credit (WOTC).
The Work Opportunity Tax Credit (WOTC) provides income tax incentives to businesses that hire workers that have significant barriers to employment, as outlined by the Department of Labor. These individuals include veterans, those on temporary financial assistance, and residents of certain geographic zones (A full list can be accessed here). The WOTC offers Federal tax credits ranging from $2,400 to $9,600 per eligible employee.
Employers have equal access to tax credits, regardless of location; this Federal program is available to all income tax-paying employers in all 50 states, Puerto Rico and the U.S. Virgin Islands.
How do businesses benefit from the WOTC?
The WOTC program has multiple benefits:
- For workers: The WOTC helps remove barriers to hire by helping to offset the cost of hiring and training, in addition to other opportunities for employment.
- For Employers: Organizations can reduce their tax liabilities, impacting their bottom-line and allowing them to invest further resources in their company and employees. Employers also gain access to great employees who are proven to perform as well as their peers.
- For the community: The WOTC boosts the economy by reducing unemployment rate and reducing individuals’ dependency on government assistance programs funded by taxpayers.
Why did the WOTC program take a hiatus in January 2014?
As a government incentive that requires legislative authority, the WOTC program has experienced periods of hiatus – times in which the legislative authority of the program lapses. From January 1, 2014, through December 19, 2014, the program was in a hiatus period that ended when the President signed the Tax Increase Prevention Act of 2014 into law. This act extended the WOTC retroactively from January 1, 2014 through December 31, 2014.
Now that the program has been re-enacted retroactively, how do businesses (retroactively) screen applicants to receive their benefits?
Recently, the IRS issued notice 2015-13, which offers the WOTC hiatus ‘transition relief’ for the 2014 calendar year. Taking into account that the 2014 WOTC hiatus had detrimental effects on employers’ tax planning and business strategies, the Internal Revenue Service (IRS) is now forgoing the normal 28-day filing deadline for the WOTC so as to allow employers to capture any missed tax credits that may have gone unclaimed in 2014 while the future of the WOTC program was uncertain. The IRS notice states:
“Because the Act extended the WOTC retroactively for 2014 for members of targeted groups, employers need additional time to comply with the requirements of § 51(d)(13)(A). Accordingly, a taxable employer that hired a member of a targeted group (as defined in §§ 51(d)(2) through (10)), or a qualified tax-exempt organization that hired a qualified veteran described in § 51(d)(3), on or after January 1, 2014, and before January 1, 2015, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the appropriate DLA to request certification not later than April 30, 2015.”
The WOTC certification requests for all hires made during the transition (aka hiatus) period can be filed until April 30, 2015. If a company had not previously participated in the WOTC program, this is an unprecedented chance to recapture a year’s worth of missed credit opportunities, amounting to tax savings of up to $9,600 per eligible hire. If a company did participate in 2014, but missed individual screenings, these credits can now be captured as if completed on-time.
How does a company apply for credit?
Employers are required to identify new hires as potentially eligible for the credit by having the individual fill out and sign the IRS Form 8850, or Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This document must also be signed by the employer or their agent. Additionally, the employer must fill out the Department of Labor Form 9061, or Individual Characteristics Form (ICF). Typically, both forms must be provided to your State Workforce Agency within 28 days of the individual’s hire date to be considered for certification. Both forms can be filled out electronically by both the employee and the employer.
Last question, can you share a few tips for organizations wanting to make sure they are getting the full benefit of this program?
Employers who wish to take advantage of this rare “retro-WOTC” opportunity can get full benefit by:
- Identifying and screening all hires who were not screened during the dates of hiatus period. Employers may also identify all individuals who, if screened during the hiatus period, did not fully complete or sign their 8850 or electronic screening.
- Maximizing efficiency, effectiveness and eligibility determinations by offering eSignature options in screening workflows. Employers can and should integrate screening processes into onboarding or applicant tracking workflows. Also, employers should meet their employees where they are by offering retro-screenings on paper, by phone-in (IVR), or online screening methods.
- Filing all new and newly complete WOTC forms with the State Workforce Agency (SWA) by April 30, 2015. Any forms not so filed will be denied certification by the SWA.
- Tracking and reporting on hours and wages of potentially eligible hires in the hiatus period to ensure proper credit identification and capture, and estimated tax payments and savings.
My thanks to Ezrie for sharing this update. Just in case you’re wondering about the status of the WOTC for 2015, Ezrie says that the program expired on December 31, 2014 and has re-entered hiatus status effective January 1, 2015 pending legislative renewal. If you want to stay on top of this issue in the future, you can follow updates on the Equifax Insights blog or sign up for the HR Issues Update e-newsletter distributed by the Society for Human Resource Management (SHRM). It’s delivered every other week when Congress is in session.
Image courtesy of Sharlyn Lauby