Business Owners: Help Wanted? You May Be Eligible for the Work Opportunity Tax Credit
Did you know that the IRS offers a Work Opportunity Tax Credit to employers who hire workers that are certified members of a targeted group facing barriers to employment?
Those targeted groups include:
Temporary Assistance for Needy Families recipients;
Qualified unemployed veterans/disabled veterans;
Formerly incarcerated individuals;
Residents living in Empowerment Zones or Rural Renewal Counties;
Vocational rehabilitation referrals;
Sommer youth employees living in Empowerment Zones;
Supplemental Nutrition Assistance Program recipients;
Supplemental Security Income recipients;
Long-term family assistance recipients; and
Long-term unemployment recipients.
Note that tax-exempt organizations are under a special rule that limits eligibility for this credit to qualified veterans who begin work between 2020 and 2026. If you are an employer who hires a member of one of the groups listed above, you have to get certification that this individual is a member of the targeted group you've identified. To do this, you must complete the irs form 8850 - Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This must be submitted to the State workforce agency no later than 28 days after the worker begins work.
In Louisiana, this would go to the Louisiana Workforce Commission - Office of Workforce Development. The form can either be mailed in to LWC-WOTC Processing Unit, PO Box 94094, Baton Rouge, LA 70804 or submitted via LWC's "e-WOTC" through laworks.net/wotc. Louisiana also requires that an Individual Characteristic Form (ETA 9061) be included. LWC will then issue a denial or certification.
The credit is claimed on the business' federal income tax return. It is typically an amount calculated off wages paid to eligible workers during the first year of employment. IRS Form 5884 assists business owners in calculating the amount of the credit. The credit is claimed via Form 5884. The credit is capped at the business' income tax liability. Any credit remaining about the tax liability is subject to carry-back and carry forward rules. On Tax-Exempt Organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to qualifying employees. The credit is available through 2025.
Interested in taking advantage of the Work Opportunity Tax Credit? Contact Bryson today!