A renewed tax credit can help employers hire workers;
key certification requirements apply.
With many businesses facing a tight job market, employers should check out a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment.
The Work Opportunity Tax Credit
Legislation enacted in December extended the Work Opportunity Tax Credit (WOTC) through the end of 2025. This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. With millions of Americans out of work at one time or another since the pandemic began, the IRS noted that one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all of that time.
The 10 Targeted Groups
The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:
- Temporary Assistance for Needy Families (TANF) recipients
- Unemployed veterans, including disabled veterans
- Formerly incarcerated individuals
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
How to Qualify
To qualify for the credit, an employer must first request certification by submitting IRS Form 8850 (Pre-screening Notice and Certification Request for the Work Opportunity Credit) to their state workforce agency (SWA). Do not submit this form to the IRS.
Normally, Form 8850 must be submitted to the SWA within 28 days after the eligible worker begins work. But under a special relief provision, a November 8, 2021, submission deadline applies to two groups of new hires—qualified summer youth employees living in Empowerment Zones and designated community residents living in Empowerment Zones.
To qualify for the November 8 submission deadline, eligible employees must start work on or after January 1, 2021, and before October 9, 2021. Other requirements and further details are in the instructions (.pdf) to Form 8850.
Eligible businesses claim the WOTC on their federal income tax return. The credit is generally based on wages paid to eligible workers during the first year of employment.
The credit is first figured on Form 5884 (Work Opportunity Credit) and then is claimed on Form 3800 (General Business Credit).
Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans. These organizations claim the credit against payroll taxes on Form 5884-C (Work Opportunity Credit for Qualified Tax Exempt Organizations).
A Final Note
Employers are encouraged to help get the word out about the advanced payments of the Child Tax Credit. Employers have direct access to many who may receive this credit.
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