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Qualified, experienced BKD client service professionals write the contents of these articles. We urge you to carefully consider all of the facts and circumstances of your situation before applying specific information in our articles. Consult your BKD advisor before acting on any matter covered in these articles.
February 2010

Work Opportunity Tax Credit – Are You Leaving Money on the Table?

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Brian Todd
The Work Opportunity Tax Credit (WOTC) is a federal tax credit providing incentives to private sector businesses for hiring individuals from 12 target groups. Employers can qualify for a tax credit worth as much as $2,400 for each eligible individual ($4,800 for certain veterans and $9,000 for employees who are “long-term family assistance recipients”). The amount of qualified wages paid by the employer determines the amount of the credit available to an employer. Generally, qualified wages consist of wages attributable to service rendered by a member of a targeted group during the one-year period beginning with the day the individual begins work for the employer (two years in the case of an individual in the long-term family assistance recipient category).

The WOTC applies to new employees who began work for an employer after December 31, 2006, and before September 1, 2011. Previous versions of the credit have expired and been retroactively extended several times. The new employee must belong to one of the following 12 WOTC target groups:

  • Long-term Temporary Assistance for Needy Families (TANF) recipient
  • Other TANF Recipient
  • Qualified food stamp recipient
  • Designated community resident
  • Summer youth employee
  • Qualified veteran
  • Vocational rehabilitation referral
  • Qualified ex-felon
  • Supplemental Security Income (SSI) recipient
  • Hurricane Katrina employee (individuals affected by this natural disaster)
  • Unemployed veteran
  • Disconnected youth (typically defined as young people not employed or in school)

All new adult employees must work a minimum of 120 but fewer than 400 hours. Summer youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. The WOTC amount an employer may claim depends on the hours the employee works. The credit is 25 percent of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours and 40 percent for those employed 400 hours or more.

The designated community resident group can provide a significant benefit if your business is near a designated area. A designated community resident is anyone certified by the local agency as having attained age 18 but not age 40 on the hiring date and has a principal residence within an empowerment zone, enterprise community, renewal community or rural renewal county. Missouri is home to several rural renewal counties, for example:  Atchison, Carroll, Chariton, Clark, Holt, Knox, Mississippi, New Madrid, Pemiscot and Worth. Your BKD advisor can assist you in determining whether your business is near a designated community.

In pass-through entities, such as S corporations and entities taxed as partnerships, the credit passes through to the owners’ individual tax returns.

The long-term care industry has significantly increased its use of these credits as more employers have taken the time to complete the necessary forms during the hiring process.

Turnover continues to be an issue facing many long-term care providers. The WOTC can offset some of the turnover costs. With high turnover rates, the process and follow-up associated with the WOTC can become rather cumbersome. BKD is here to help. Our team of professionals can help determine if potential new hires fall in one of the 12 target groups, complete the necessary WOTC forms and follow up to make sure the employer receives the appropriate credits.

Please contact your BKD advisor to discuss this and other potential opportunities and to get forms necessary for WOTC.