9/14/2021
Legislation enacted in December 2020 extended the Work Opportunity Tax Credit (WOTC) through the end of 2025.
This credit encourages employers to hire workers certified as members of these ten targeted groups facing barriers to employment:
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.
Employers must first request certification by submitting Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA) to qualify for the credit.
Form 8850 normally must be submitted to the SWA within 28 days after the new hire begins work. A special relief provision changes the deadline to November 8, 2021 for two groups:
Qualified summer youth employees living in Empowerment Zones
Designated community residents living in Empowerment Zones.
Eligible employees must start work on or after January 1, 2021 and before October 9, 2021 to qualify for the November 8 submission deadline. Other requirements and details are in Notice 2021-43 and Form 8850 instructions.
Businesses claim the WOTC on their federal income tax returns based on wages they pay to eligible workers during the first year of employment. The credit is first figured on Form 5884 - Work Opportunity Credit, then claimed on Form 3800 - General Business Credit.
While 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. They can claim the credit against payroll taxes on Form 5884-C - Work Opportunity Credit for Qualified Tax Exempt Organizations.
Additional Resources: