Is Your Company Utilizing the Work Opportunity Tax Credit?
Recent legislation has made the Work Opportunity Tax Credit a permanent tax credit to applicable employers. In order to qualify for the tax credit, the employer must employ someone from one of the following categories: 1) veterans, 2) TANF recipients, 3) SNAP (food stamp) recipients, 4) designated community residents, 5) vocational rehabilitation referral, 6) ex-felons, 7) supplemental SSI recipients, or 8) Summer Youth Employees
To claim the WOTC, an employer must have the employee certified as eligible by the appropriate state workforce agency. To do this, the employer would have to submit a form to the state agency within 28 days of hiring the WOTC-eligible worker. The state agency determines that the individual meets the requirements and certifies the application. The employer may claim the credit as part of the General Business Credit. These credits can be carried back one tax year or carried forward up to 20 tax years.
The amount of the WOTC is calculated as a percentage of qualified wages paid to an eligible worker during the worker’s first year of employment, up to a statutory maximum. An employer may claim a credit equal to 40% of an eligible employee’s qualified wages if the qualified employee worked at least 400 hours during the first year of employment, up to a statutory maximum. If the employee worked fewer than 400 hours but more than 120 hours, the employer may claim a credit equal to 25% of the employee’s qualified wages. If the employee worked fewer than 120 hours, an employer may not claim the WOTC. The WOTC is a nonrefundable tax credit, so an employer must have had tax liability to claim it.
The professionals at The Center for Financial, Legal and Tax Planning are more than well-equipped to answer your questions with regards to the Work Opportunity Tax Credit or other available tax credits for your business. Please contact us at (618) 997-3436 to setup a free consultation.