Newly released IRS guidance allows you to capture missing Work Opportunity Tax Credits (WOTC) for employees hired between January 1, 2015, and May 31, 2016.
This is a great opportunity for you to reclaim credits under the WOTC program and establish internal systems that help ensure you're maximizing your available tax credits.
What is WOTC?
WOTC (work opportunity tax credits) encourages employers to hire and retain individuals from various target groups—including veterans, welfare recipients and the long-term unemployed, among others. The program gives you a tax credit of up to $9,600 per eligible employee during their first year of employment. To receive that credit, you must pre-screen job applicants before extending an offer of employment, then submit an IRS Form 8850 for each new hire within 28 days of their start date.
The WOTC program expired on December 31, 2014, but was renewed via legislation passed in December 2015. The legislation extended the WOTC tax credits retroactively from January 1, 2015, through the end of 2019. And, just recently, the IRS announced retroactive transition relief to employers from the pre-job offer screening requirement and the 28-day filing requirement. This announcement will help employers capture their missing 2015 and 2016 credits.
What to Know About the Long-Term Unemployed Category
"Long-term unemployed" is a new category under the WOTC, added for employees starting work on or after December 31, 2015.
To qualify, a newly hired employee must have been unemployed for 27 consecutive weeks or longer and received unemployment compensation during their period of unemployment.
Your WOTC Opportunity
- Capture missing tax credits from January 1, 2015, to May 31, 2016.
- Earn up to $9,600 per eligible employee.
- Establish an applicant screening solution to maximize your ongoing WOTC.
IRS Transition Relief
On March 7, the IRS issued Notice 2016-22, detailing the WOTC transition relief process. (For full text of Notice 2016-22, visit https://www.irs.gov/pub/irs-drop/n-16-22.pdf.)
- WOTC transition relief is available for new hires from all target groups, except the newly added "long-term unemployed" category, if hired between January 1, 2015 and May 31, 2016.
- WOTC transition relief is available for new hires from the newly added "long-term unemployed" category if hired between January 1, 2016 and May 31, 2016.
- For employees hired during the transition relief period, employers are not required to screen job applicants prior to a job offer or file a completed Form 8850 within 28 days of a new employee's job start date.
- The filing deadline for transition relief is June 29, 2016.
Review Your Program Administration
For employees who are hired and begin work on or after June 1, 2016, the 28-day window for completing and submitting WOTC materials will once again apply. In the meantime, however, you may want to review your administrative practices to make sure you're maximizing your WOTC opportunities in the future.
Consider implementing, for example, a pre-built job applicant screening solution that ensures you're completing the full WOTC process within the 28-day window. A robust solution with multiple screening methods (including mobile) can help you take better advantage of the WOTC program.
Time to Get Started!
Be sure to take advantage of the tax savings offered through WOTC transition relief. The June 29 deadline gives you more time to identify and claim your available tax credits, as well as determine solutions that can streamline administrative functions going forward.