Employers who hire job applicants from qualified target groups can earn significant tax credits by doing so – but to earn those credits, the employer must take specific actions before and soon after the date the job is offered and the employee’s first day of employment. In brief, here are the four steps an employer must complete to seek the Work Opportunity Tax Credit.
What needs to be done
- Pre-Screening Notice (IRS Form 8850) page 1
Ask every applicant to complete and sign page 1 of the WOTC Pre-Screening Notice. It must be signed and dated on or before the day the job is offered. The Pre-Screening Notice is the most significant step toward eligibility for the WOTC program. If this is not mailed timely or completed properly, the certification process cannot continue.
- Pre-Screening Notice (IRS Form 8850) page 2
The employer completes page 2 of the Pre-Screening Notice, Form 8850, when the decision to hire is made. If you decide not to hire at that time, keep the form with the application as long as you keep the application. This form cannot be faxed; it must include both employee and employer’s original signatures.
- Individual Characteristics ETA Form 9061 or Conditional Certification ETA Form 9062
On or before the first day of work, if the employee has not already provided a copy of the Conditional Certification (ETA 9062), have the applicant complete and sign the Individual Characteristics Form (ETA 9061), available on the Department of Labor website.
If the prospective employee provides a Conditional Certification for the Work Opportunity Tax Credit (ETA 9062), the process is slightly simpler; we have outlined the steps for an employer both with and without an applicant’s Conditional Certification.
Employer certification process if prospective employee does not provide Conditional Certification:
Individual Characteristics Form (ICF) for the Work Opportunity Tax Credit: The Individual Characteristics Form is ETA 9061. The ICF’s purpose is to expedite certification processing by enabling the individual for whom certification is requested to self-identify as a member of a targeted group and provide information to verify his or her membership in that group. The ICF may be signed by any of the following: the applicant, an authorized official on the employer’s staff, an employer's representative, or in the case of a minor, a person having legal status to verify the information on the form. The ICF may be filed electronically. ICFs filed electronically are presumed to be "signed" by the individual or corporate entity requesting WOTC certification for an applicant.
Conditional certification process -- prospective employee typically provides Form 9062:
ETA Form 9062 (Rev. Jan. 1998), the Conditional Certification Work Opportunity and Welfare-to-Work Tax Credits form, is issued by either the Job Service Career Center representative or Participating Agency representative, e.g., JTPA, Job Corps. The top portion of the form is to be completed by the applicant/new employee. The bottom portion of the form must be completed, signed, and attached to the IRS Form 8850.
- Employer must submit the Pre-Screening notice (IRS Form 8850) and EITHER ETA 9062 or ETA 9061 (Individual Characteristics OR the Conditional Certification) to the local State Employment Security Agency (SESA) within 28 calendar days after the employee begins work.
Forms must be completed and submitted to the appropriate state workforce agency. For Kansas employees:
- Submit electronically through Kansas WOTC LiveFile at KansasWOTC.com, OR
- Copy both the IRS 8850 and ETA 9061 for your file and mail to this address:
Department of Commerce
Kansas employers can learn more at the Kansas Department of Commerce’s website.
Attention: WOTC unit
1000 SW Jackson St., Suite 100
Topeka, Kansas 66612-1354
- If SESA certifies individuals are eligible for WOTC, the agency will notify the employer in writing for purposes of filing the tax credit.
Who does it help?
The Work Opportunity Tax Credit is a federal income tax credit that encourages employers to hire certain job seekers from eligible target groups with significant barriers to employment. It was designed to help people move into financial stability and independence, gain on-the-job experience, while also delivering a tax benefit to employers. WOTC is part of a group of education and training initiatives and targeted tax credits that help workers prepare for good jobs and ease the transition from job to job.
Employers can earn federal income tax credits worth generally 40% of the first $6,000 of qualified wages paid to each member of a targeted group during the first year of employment for those employed 400 or more hours, and 25% for those employed for at least 120 hours, but fewer than 400 hours. The credit is allowed for first-year wages paid to eligible individuals who begin work before January 1, 2020 – and the taxpayer can use the credit against both regular tax and alternative minimum tax liabilities.
Employers can hire eligible employees from the following target groups to earn WOTC:
- Qualified IV-A recipient: Temporary Assistance for Needy Families (TANF) Recipients
- Qualified veterans
- Qualified ex-felons
- Designated community residents
- Vocational Rehabilitation referrals
- Summer youth employees
- Food stamp (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients (NEW target group)
Need more information?
For more information about the Work Opportunity Tax Credit or other tax management and mitigation options, please contact your AGH tax professional or Shawn Sullivan using the information below.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
Senior Vice President
Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.