What you need to know
Employers bringing in eligible new employees can earn federal income tax credits for hiring those with barriers to employment. However, application for Work Opportunity Tax Credits (WOTC) is time-sensitive, and the employer must meet two deadlines, among other requirements:
- Employer must have the applicant fill out and sign the WOTC Pre-Screening Notice (IRS 8850) before or on the day the job is offered.
- Employer must also complete the Pre-Screening Notice and send it along with EITHER the Conditional Certification (ETA 9062) OR the Individual Characteristics Form (ETA 9061) to the local State Employment Security Agency (SESA) within 28 days after the employee begins work.
Tax credit benefits for employers can be significant, especially if the employer hires a number of applicants from targeted groups:
- 40% of the first $6,000 of qualified wages paid to each member of a targeted group in the first year of employment for those employed 400 or more hours
- 25% of the first $6,000 of qualified wages paid to each member of a targeted group in the first year of employment for those employed at least 120 hours but less than 400
The Work Opportunity Tax Credit is designed to encourage employers to hire job seekers who may have employment barriers and help them move toward financial independence. Hiring individuals from the following target groups qualifies employers for the 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
- Supplemental Security Income (SSI) Recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients (NEW target group)
This credit is allowed for first-year wages paid to eligible individuals who begin work before Jan. 1, 2020; the taxpayer can use the credit against both regular tax and alternative minimum tax liabilities.
For a more detailed explanation of how the Work Opportunity Tax Credit works and how to apply for it, see our white paper.
For more information about the Work Opportunity Tax Credit or other tax management and mitigation options, please contact your AGH tax professional or AGH’s Shawn Sullivan or Eric Thummel 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.
Eric joined the firm in 2008, bringing almost a decade of prior public accounting experience. He leads the firm’s construction team and also has experience serving clients in a variety of other industries, including agribusiness, hospitality, retail, distribution, service and manufacturing. His experience goes well beyond providing compliance services. Eric assists closely held, family owned and private equity clients with tax saving strategies, multi-state taxation, complex income allocations, succession planning, and mergers and acquisitions.
Eric attended Wichita State University where he earned his bachelor’s in accounting and a master’s of professional accountancy. He is a certified public accountant who serves as president on the board of the Greater Wichita Area Construction Financial Management Association chapter. He’s also a member of the Agribusiness Council of Wichita, the Kansas Livestock Association, the KSCPA and the AICPA.