The IRS has released updated information on the Work Opportunity Tax Credit (WOTC), available to employers that hire designated categories of workers who face significant barriers to employment. For employers facing a tight job market, the WOTC may be able to help.
The updates include information on the pre-screening and certification process. To satisfy the requirement to pre-screen a job applicant, on or before the day a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer.
The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is designed to incentivize the hiring and employment of certain categories of workers.
After pre-screening a job applicant, the employer must then request certification by submitting Form 8850 to the appropriate state workforce agency no later than 28 days after the employee begins work. Other requirements and further details can be found in the instructions to Form 8850.
WOTC has 10 designated categories of workers. The 10 categories are:
Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
Certain veterans, including unemployed or disabled veterans
The formerly incarcerated or those previously convicted of a felony
Designated community residents living in Empowerment Zones or Rural Renewal Counties
Vocational rehabilitation referrals
Summer youth employees living in Empowerment Zones
Food stamp (SNAP) recipients
Supplemental Security Income (SSI) recipients
Long-term family assistance recipients
Qualified long-term unemployment recipients
Although the credit generally is not available to tax-exempt organizations, a special provision allows them to claim the WOTC against the employer’s share of Social Security tax for hiring qualified veterans. These organizations claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.