Collecting Your Credits: Are You Missing Out?
Author: Michael Ormsby
If you’re a long-term care facility (LTC) owner and not taking advantage of the Work Opportunity Tax Credit (WOTC) program, you could be leaving money on the table. The WOTC program offers employers a tax credit for hiring employees that meet certain criteria. The WOTC program can provide significant benefit by helping reduce the federal income tax burden, including the alternative minimum tax. For most LTC providers these credits will be passed through to the owners. Even if the credits can’t be used in the year they were received, the credits can be carried forward for up to 20 years. Currently, the WOTC program has been extended through December 31, 2019.
The WOTC program has been used to encourage employers to hire individuals who face workforce barriers. There’s no limit on the number of individuals an employer may hire that qualify for the credit. Therefore, the WOTC program is more prevalent in industries with higher turnover. Individuals can be classified in any of the following groups to qualify for the WOTC:
- Qualified Temporary Assistance for Needy Families (TANF) recipients
- Long-term TANF recipients
- Qualified veterans (including disabled veterans)
- Qualified ex-felons
- Qualified Designated Community Residents
- Vocational Rehabilitation referrals
- Qualified summer youth employees
- Qualified Supplemental Nutrition Assistance Program recipients
- Qualified Supplemental Security Income recipients
- Qualified long-term unemployment recipients
To help identify certain individuals without the potential for discrimination, employers may use Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form must be completed the day the job offer is made. If the employee qualifies, Employment and Training Administration Form 9061 or 9062 also must be completed. The form would then be mailed to the appropriate state workforce agency within 28 days.
After certification is received, the tax credits can range from $1,200 to $9,600 per employee, depending on the new employee’s classification, hours worked and wages paid in the first year. In general, the credit is maxed at $2,400 per employee who’s worked at least 400 hours. This is calculated as 40 percent of the first $6,000 of wages during the first year. For those employees with at least 120 hours—but less than 400 hours—the credit is 25 percent of wages.
It’s not uncommon to see individual facilities generating $10,000 in credits each year. For an owner of 10 facilities, that could mean $100,000 in credits per year for doing nothing other than filing a few additional forms.
Beginning in 2015, qualified tax-exempt organizations received a limited opportunity to take advantage of this credit. Those organizations may claim the credit for qualified veterans who begin work by December 31, 2019.
After Form 8850 is secured, tax-exempt employers claim the credit against the employer Social Security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).
File Form 5884-C after filing the related employment tax return for the period the credit is claimed. The IRS recommends qualified tax-exempt employers not reduce their required deposits in anticipation of any credit.
For additional information on claiming the WOTC on your tax return, contact your BKD advisor or visit the U.S. Department of Labor’s website.