What Is the WOTC?
The WOTC is a federal tax credit. It’s purpose? To encourage employers to hire job-seekers with employment barriers. Many veterans will find it useful to overcome employment challenges. Here’s how it works. When an employer hires an applicant who has a barrier (e.g., a disabled veteran), the hiring company can claim a WOTC tax credit to recover a portion of the wages paid during the initial period of employment. The tax program can provide to employers an incentive to hire and retain veterans who qualify for the credit.
Who Qualifies for the WOTC CREDIT?
The WOTC Credit targets nine groups:
· Recipients of TANF (Temporary Assistance to Needy Families),
· Unemployed veterans receiving Food Stamps or veterans with a service connected disability who:
A. Are hired within one year after being discharged from active service or
B. Who have been unemployed a total of six months or more during the year prior to being hired,
· Ex-felons hired within one year after conviction or release from prison,
· Applicants over 18 but less than 40 when hired who reside in an Empowerment Zone, Renewal Community, or Rural Renewal County,
· Referrals from State Vocational Rehabilitation,
· Summer youth ages 16 through 17 who reside in an Empowerment Zone, Renewal Community, or Rural Renewal County,
· Food Stamp recipients aged 18 but under 40 on the hiring date,
· Recipients of Supplemental Social Security (SSI), and
· Long-term family assistance recipients.
Counselors should check a veteran’s qualifications under all applicable criteria. For example, an unemployed veteran who does not qualify under criterion 2 may yet qualify under one of the other criteria (SSI recipient, Vocational Rehabilitation referrals, recently released felons, etc.)
How Much Is the WOTC Worth?
For the employer to apply for a WOTC credit, the qualified employees hired must work a minimum of 120 hours. For most targeted groups, the credit is based on the employee’s first $6000 in wages. In these categories, this is what an employer can expect to get:
A. 25% credit for qualifying workers who work at least 120 hour but less than 400 hours, and
B. 40% credit for workers who work at least 400 hours for a maximum of credit of $2400.
But the credit for Disabled or Unemployed Veterans is substantially higher. It is based on the first $12,000 of employee earnings. So the employer can expect to get:
A. 25% credit for workers who work at least 120 hours but less than 400 hours, and
B. 40% credit for workers who work at least 400 hours for a maximum credit of $4,800.
The credit targeting those who qualify under Long Term Family Assistance is also higher, especially if the employee continues to work a second year.
A. The first WOTC credit does not change: 25% credit for qualifying workers who work at least 120 hour but less than 400 hours,
B. The second level of credit is only 40% of the wages paid in the first year of employment for employees working 400 or more hours up to a maximum of $4000, and
C. The employer can earn 50% credit on employee wages paid during the second year for a maximum of $5000.
How Can Employers Apply?
Employers must have applicants complete Form 8850 (Pre-Screening Notice & Certification Request) on or before the day you offer a qualifying applicant a job.
Each applicant who is potentially qualified for WOTC based on the Form 8850, must then complete an ETA-9061 (Individual Characteristic Form).
Forms 8850 & ETA 9061 must be postmarked within 28 days of the date the applicant begins work to be considered. Any forms not meeting this requirement will be denied. The forms cannot be accepted by fax or email.
Mail completed forms to the following address:
WOTC Program Coordinator
Indiana Department of Workforce Development
WOTC – SE311
10 N Senate Avenue
Indianapolis, IN 46204
317-232-7746
(F) 317-233-2679
Form 8850 must be postmarked within 28 days of the date the applicant begins work to be considered. Any late requests will be denied. The form cannot be accepted by fax or email.
Certification of Employee Eligibility
Once an employee is determined eligible, the employer will be sent Form ETA-9063 (WOTC Certification) to verify that employee’s eligibility under the WOTC Federal Tax Credit program. This form must be retained by the employer for tax purposes.
How to File for the WOTC at Tax Time?
Generally employers use IRS Form 5884 (Work Opportunity Credit) to claim the WOTC tax credit. Form 5884 is filed with employer’s federal income tax return. But if the employer is claiming a WOTC credit for an employee qualifying under Long-term Family Assistance, a different form must be used to claim the tax credit: IRS Form 8861 (Welfare to Work Credit). Form 8861 is filed with employer’s federal income tax return.
The credit is usually applied to the employer‘s tax liability for the tax year in which the employee is hired. If the credit exceeds the current year’s tax liability, the employer may apply the remaining credit to the previous year’s tax liability. This may be carried back one year or forward 20 years. For more information on unused credits, employers should contact the IRS or their tax accountant.
For additional information on WOTC requirements and downloadable copies of all required WOTC forms, please visit the Indiana State Government link below:
http://www.in.gov/dwd/2497.htm
–David Richardson, Employment Coordinator
Philosopher and educator, John Dewey, noted in his Ethics that modern culture still maintains classical prejudices against manual labor. Aristocrats in Athens and Rome devoted their ample leisure time to social, political, and military pursuits, leaving the “real” work of enterprise to slaves and women. Though a bit altered today, as Dewey observed, that attitude has survived into the modern day. In both Europe and America, consequently, the “white collar” has routinely enjoyed higher status and economic reward than has the “blue collar.”
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