Hiring Challenges Can Be Helped by a Targeted Approach; Review the Eligibility of Valuable WOTC Tax Credits
By PHILLIP ROSS, CPA, CGMA, PARTNER
Like many construction companies, your firm may have been trying for some time to fill open positions. If this is the case, be aware of a valuable tax credit for employers hiring individuals from one or more targeted groups.
The Work Opportunity Tax Credit (WOTC) is generally worth $2,400 for each eligible employee, but can be worth more—and in some cases, much more.
Generally, an employer is eligible for the credit only for qualified wages paid to members of a targeted group. These groups are:
- Qualified members of families that receive assistance under the Temporary Assistance for Needy Families program
- Qualified veterans
- Qualified ex-felons
- Designated community residents
- Vocational rehabilitation referrals
- Qualified summer youth employees
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP)
- Qualified Supplemental Security Income recipients
- Long-term family assistance recipients
- Long-term unemployed individuals
Employer Eligibility and Requirements
Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and in some U.S. territories. Taxable employers can claim the WOTC against income taxes. However, eligible tax-exempt employers can claim the WOTC only against payroll taxes and only for wages paid to members of the qualified veteran targeted group.
Many additional conditions must be fulfilled before employers can qualify for the credit. Each employee must have completed a minimum of 120 hours of service for the employer. Also, the credit isn’t available for employees who are related to the employer or who previously worked for the employer.
WOTC amounts differ for specific employees. The maximum credit available for the first year’s wages generally is $2,400 for each employee, or $4,000 for a recipient of long-term family assistance. In addition, for those receiving long-term family assistance, there’s a 50% credit for up to $10,000 of second-year wages. The maximum credit available over two years for these employees is $9,000 ($4,000 for Year 1 and $5,000 for Year 2).
For some veterans, the maximum WOTC is higher: $4,800 for certain disabled veterans, $5,600 for certain unemployed veterans, and $9,600 for certain veterans who are both disabled and unemployed.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and Sept. 15. The maximum WOTC credit available for summer youth is $1,200 per employee.
Additional rules and requirements apply. For example, you must obtain certification that an employee is a target group member from the appropriate State Workforce Agency before you can claim the credit. The certification generally must be requested within 28 days after the employee begins work. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. Nevertheless, for most employers that hire from targeted groups, the credit can be valuable.
About the author: Phillip Ross, CPA, CGMA is an Accounting and Audit Partner and Chair of the Construction Industry Group at Anchin, Block & Anchin, LLP. For more construction industry thought leadership and content, log on to www.anchin.com.