Late last year, Congress passed what is titled the Protecting Americans from Tax Hikes (PATH) Act of 2015. This past week, the IRS issued Notice 2016-22 which provides guidance and Transition Relief for employers claiming the Work Opportunity Tax Credit (WOTC). If you are not familiar with the WOTC, it is a tax incentive for employers to hire and retain individuals from specific target groups. The groups include certain Veterans, Temporary Assistance for Needy Families (TANF) recipients, Food Stamp recipients, Supplemental Security Income (SSI) recipients, Vocational Rehabilitation (VR) Referred Individuals, Ex-Felons, Summer Youth employees, and effective January 1st, 2016, there is a newly added category for the Long-Term Unemployed*.
What is important to note about this transition relief is that you are able to file for, and claim a credit for any new hires from 1/1/15 to 5/31/16 for all target groups, except the new long-term unemployed target group. For those employees that you may have hired applicable to the long-term unemployed group, you are able to go back to 1/1/16.
Normally, a claim must be filed within 28 days of the employee’s start of work, so this is a huge benefit to employers who may not have previously been aware of this credit to go back to the start of 2015.
The amount of the credit, per employee is no small matter either. Employers generally can earn a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs.
- For all target groups except the long-term TANF recipient, employers will earn 25%, if the employee works at least 120 hours, and 40%, if the employee works at least 400 hours.
- For the long-term TANF target group, employers will earn 40%, if the employee works at least 400 hours in the first year, and 50%, if the employee works at least 400 hours in the second year.
The credit varies by the target group, and the DOL provides a calculator to help estimate the credit. Click here to download the calculator.
- Receives SNAP (food stamps) benefits $2,400
- Entitled to compensation for service-connected disability and Hired one year from leaving service $4,800
- Entitled to compensation for service-connected disability and Unemployed at least 6 months $9,600
- Unemployed at least 4 weeks $2,400
- Unemployed at least 6 months $5,600
- Short-Term TANF Recipient $2,400
- Long-Term TANF Recipient (credit over 2 years) $9,000
- SNAP (food stamp) Recipient $2,400
- Designated Community Resident $2,400
- Vocational Rehabilitation Referral $2,400
- Ex-Felon $2,400
- SSI Recipient $2,400
- Summer Youth $1,200
Forms can be found on the Department of Labor’s website
As a client of PayMaster, we can assist you with the WOTC by offering a fully electronic means from capturing information from your new hires to filing for the credits, and calculating the final year end amount. Contact me if you would like additional information on our WOTC solution.
*Note that the forms have not been updated for the new Long-Term Unemployed tax credit. According to the IRS these forms should be available soon.