IRS Updates Information on Work Opportunity Tax Credit
The IRS recently updated information on the Work Opportunity Tax Credit (WOTC), available to employers that hire designated categories of workers who face significant barriers to employment.
The updates include information regarding 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, the job applicant and the employer must complete a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit).
The Targeted Jobs Tax Credit (TJTC), which preceded the WOTC, did not contain a pre-screening requirement. In enacting the 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.
The WOTC has 10 designated categories of workers. The 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.
These WOTC updates come a month after the IRS issued a notice allowing employers more flexibility in claiming the WOTC to hire people in underprivileged areas who experience significant barriers to employment for jobs in summer youth and community programs.