In December of 2015, President Obama was presented and authorized the tax bill known as the PATH Act. This legislation extends or makes permanent fifty-three tax provisions, providing significant tax relief for corporations and small business owners. The Work Opportunity Tax Credit (WOTC) program is one of the extended provisions and is unique because it can impact companies of all sizes and industries. If your company is growing, uses seasonal employees, or experiences turnover, you should learn how WOTC could generate thousands of dollars in tax credits for your business.
WOTC is a federal tax credit program benefitting employers who hire individuals from groups that have faced barriers to employment such as veterans, youths, disabled, long term unemployed, and those benefiting from government assistance. This program has been largely underutilized due to lack of awareness, insufficient resources to maintain the program, or confusion over which department should be driving the initiative. Additionally, many employers assume their payroll provider is already conducting the necessary steps to capture the tax credits, which is often not the case.
To determine if WOTC is a reasonable program to implement, we suggest first examining your hiring projections, including expected turnover and targeted candidate pool. If you are planning on hiring more than 20 people per year, we recommend reviewing your hiring process to determine how to best implement the proper steps into your on-boarding program. The procedure is not difficult, but must be diligently followed and maintained to maximize the benefits. New hires first must complete Form 8850, which captures information necessary to qualify the individual for the program. The employer is then responsible for verifying employment information, signing and submitting the document to a Designated Local Agency for approval. These forms must be received by the local agency within 28 days of the employee’s hire date. Companies who have been successful capturing WOTC credits usually trust human resources to administer and manage the process. Quarterly reviews should be conducted to assess program effectiveness and provide accounting with the amount of accrued credits. These tax credits are calculated using total hours worked and gross wages earned and are taken as a general business credit during the company’s annual filing.
Employers who have hired individuals from targeted groups have captured millions of dollars through the WOTC program. It is important to assess your internal resources and hiring projections to decide if implementing the program is practical for your company.
To learn more about WOTC and determine how your firm can capture these tax credits, please contact Dan Dunan, Principal of Tax at 630-285-0215.