Work Opportunity Tax Credits
The Work Opportunity Tax Credits (WOTC) are another example of the Governments use of tax credits to encourage social good. They offer tax breaks to employers who employ targeted groups.
The Work Opportunity Tax Credits (WOTC) are given to employers who hire certain targeted groups of employees who might otherwise find employment difficult. The program serves as an incentive for the employers to accept employees that might otherwise not be considered by offering the employer a substantial tax credit based on a percentage of the earning paid to the targeted employee during their first year of employment.
Since a tax credit comes directly off the amount of taxes owed rather than reducing taxable income, the Work Opportunity Tax Credit is basically a way that the Government pays a certain portion of the new employee’s first year wages in a round about fashion. When an employer understands this, it makes the idea of seeking out a targeted employee rather attractive. What are the targeted employees?
The list of targeted employees eligible for Work Opportunity Tax Credits includes qualified recipients of Temporary Assistance of Needy Families (TANF) and qualified veterans. It also includes qualified ex-felons and high risk youth. Qualified summer youth employees and vocational rehabilitation referrals are also eligible. Qualified food stamp recipients and qualified SSI recipients round out the list.
You can not miss the use of the word, “qualified” when reviewing the eligibility list. The exact definition of qualified here varies from group to group and the individual State Employment Security Agency must certify the employee before the tax credit can be claimed. It is the State, therefore, that will be responsible for determining who is considered qualified. The employer must receive a certification of eligibility on the employee on or before the day they begin to work, or file a Form 8850.
Form 8850 is certainly a candidate for the “longest name for a form” award. It is the Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits Form. It must be filled out on or before the employee is offered employment and sent in within 21 days of the time the employee begins work. The tax credit can not be claimed unless the certification is actually received. The Work Opportunity Tax Credits can be worthwhile to an employer, but they do not entirely subsidize the pay of the targeted employee. The employer still must make the decision on the feasibility of hiring the targeting employee and assuming the risk, but the credit does serve as a good incentive to give the employee a chance to prove themselves.