The Work Opportunity Tax Credit is a federal incentive that encourages businesses to hire individuals receiving government assistance.
Distributed at the state level, the credit can provide significant savings and boost cash flow for businesses by offsetting federal tax liability.
Gain a clear understanding of the Work Opportunity Tax Credit including eligibility criteria, application processes, and other key details that can help your organization leverage this opportunity.
Which Target Groups are Included in Criteria?
Receiving the Work Opportunity Tax Credit requires employing workers from specific target groups, including:
- Members of families that receive Supplemental Nutrition Assistance Program (SNAP) benefits, long-term Temporary Assistance to Needy Families (TANF), or Aid to Families with Dependent Children (AFDC)
- Qualified veterans who are unemployed, disabled or receiving SNAP benefits
- Qualified ex-felons or pardoned, paroled, or people on work-release
- Individuals who’ve completed or are completing vocational rehabilitation programs
- Qualified summer youth—employed only during the period between May 1 through September 15—ages 16 or 17 years-old living in an empowerment zone
- Individuals receiving Supplemental Security Income
- Residents of designated communities, including individuals living within a rural renewal county or empowerment zone
- Individuals who were unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law during this period
How Much Can Employers Receive?
The amount of the tax credit varies depending on the target group and the number of hours worked by the employee. The maximum credit ranges from $1,200 to $9,600 per employee.
How do Employers Apply?
Employers can work with a third-party provider that can automate processes for determining qualification, obtaining an applicant or new hire signature, and filing the applications with the correct state agencies on behand of the employer.
Alternatively, employers can facilitate the qualification and application process in house by having applicants and new hires complete IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, and ETA Form 9061, Individual Characteristics Form. Employers submit these forms to the state workforce agency within 28 calendar days after the employee is hired.
Is There a Deadline to Claim the Tax Credit?
Employers can claim the tax credit in each tax year certifications are issued by the state workforce agency.
Are There Other Requirements?
Employers must obtain certification from the state workforce agency that the employee is a member of a target group eligible for the tax credit in order to calculate and claim the tax credit.
Is There a Limit an Employer Can Claim?
There is no limit to the number of certified employees an employer can claim in a tax year. The credit amount is determined based on the certified employees’ target group and the gross hours and wages generated in the eligible period.
Can the Tax Credit be Carried Forward or Back?
The tax credit may be carried back one year or carried forward for 20 years.
Can Remote Workers Be Claimed?
Yes, employers can claim employees who work remotely as long as the employee is a member of a target group eligible for the tax credit and the employer meets all other requirements to claim the tax credit.
Are There Any States with Equivalent Hiring Credits?
Many states offer their own equivalent opportunities. The amount of credit and the type of tax they offset varies by state. Below are a few prominent state opportunities.
Alaska
Claim an income tax credit of up to $3,000 for the first taxable year for employing new, full-time, qualified veterans.
Arizona
Claim an income tax credit for each qualified new employee who is a TANF recipient of up to:
- $500 in year one
- $1,000 in year two
- $1,500 in year three
Illinois
Claim an income tax credit of up to $1,500 for each qualified felon who was convicted in Illinois, sentenced to a period of incarceration, and hired within three years of being released.
New York
Claim a franchise tax credit of up to $2,100 for the first taxable year for employing new full- or part-time qualified, disabled employees.
We’re Here to Help
To learn more about the Work Opportunity Tax Credit and how your organization can benefit from it, contact your Moss Adams professional.
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