An often-ignored tax credit available to the retail industry is the Work Opportunity Tax Credit (WOTC), which is provided to employers that hire workers from certain targeted groups. Wages paid to employees in the following target groups potentially qualify for the WOTC:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
- Qualified veterans
- Qualified ex-felons
- Designated community residents
- Vocational rehabilitation referrals
- Qualified summer youth employees (maximum credit is reduced for this group)
- Qualified members of families in the Supplemental Nutrition Assistance Program (SNAP)
- Qualified Supplemental Security Income (SSI) recipients
- Long-term family assistance (LTFA) recipients
If an eligible employee works 400 or more hours in their first 12 months of employment, the WOTC equals 40 percent of those first-year wages up to a maximum amount of $6,000 per employee (i.e., maximum credit of $2,400, which is 40 percent of $6,000), with the following exceptions:
- $3,000 maximum wages for qualified summer youth employees ($1,200 maximum credit)
- $6,000 maximum wages for a veteran who is a member of a family receiving assistance under a food stamp program for at least three months, all or part of which is during the 12-month period ending on the hiring date ($2,400 maximum credit)
- $12,000 for a veteran with a service-connected disability who has a hiring date that isn't more than one year after having been discharged or released from active duty ($4,800 maximum credit)
- $24,000 for a veteran with a service-connected disability who has aggregate periods of unemployment during the one-year period ending on the hiring date of six months or more ($9,600 maximum credit)
- $6,000 for a veteran who has aggregate periods of unemployment during the one-year period ending on the hiring date which equal or exceed four weeks, but less than six months ($2,400 maximum credit)
- $14,000 for a veteran who has aggregate periods of unemployment during the one-year period ending on the hiring date of six months or more ($5,600 maximum credit)
- $10,000 for a LTFA recipient and an additional 50 percent of second-year wages ($9,000 maximum credit over the first two years)
If the employee works at least 120 hours but less than 400 hours in the first year, the WOTC equals 25 percent of those first-year wages up to the maximum amount of $6,000 per employee (maximum credit of $1,500).
To claim the WOTC, the employer must receive certification from a designated local agency which will confirm the new employee is a member of a targeted group. The certification requirements are satisfied if the employer completes a pre-screening notice (IRS Form 8850) for the employee and submits Form 8850 to the local agency as part of a request for certification by April 30, 2015.
Other aspects of the WOTC not discussed above may impact you. For example, rehired employees and employees related to the employer are not considered qualified employees for this credit. It is important to note that this dollar-for-dollar reduction in tax is only available to employers that hire qualified workers beginning work on or after Jan. 1, 2014, and before Jan.1, 2015.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.