Timing is Everything With WOTC

WOTC Time Is MoneyFamed English actor Jeremy Irons said, “The secret to life is timing.” So too is success with the Work Opportunity Tax Credit!

Also known as “WOTC” (pronounced Watt See), the Work Opportunity Tax Credit rewards businesses with $2,400 to $9,600 in federal income tax credit when they hire members of a WOTC target group.

However, don’t let the term “target group” frighten you. Being a member of a target group means a person is experiencing something in their life that warrants a little extra help getting a job. These are neighbors and co-workers, maybe even you or me right now.  Read more about WOTC target groups here.

Back to timing. Timing can make or break the WOTC certification process.

“Certification? What is that?” you ask.

Let’s assume for this discussion that you are an employer. To claim a tax benefit under the WOTC program, you must first request a certification from the WOTC office at your state’s workforce agency. The certification verifies that your new employee is WOTC eligible.

There are multiple steps to this process. Let’s walk through it and see why timing is critical.

WOTC Pre-screening Notice, IRS Form 8850Step One, Complete WOTC Pre-screening Form. Your job applicant or new hire completes IRS Form 8850, also known as the WOTC Pre-screening Notice. The questions on this form help to determine if an individual has experienced any of the WOTC-qualifying circumstances.

By law, this form must be completed “on or before the day” you offer them a job. Many companies conduct this screening on the same day employees fill out their other new-hire paperwork. It cannot be completed later.

 

WOTC Individual Characteristics Form ETA 9061Step Two: Complete Individual Characteristics Form. Using the Department of Labor’s ETA 9061 WOTC Individual Characteristics form, your new hire now responds to a second set of questions. These questions are more detailed than those on the WOTC Pre-screening Notice I mentioned above.

Usually, this is not really a second step because most employers request answers to both sets of questions at the same time.

Also, while employees themselves must use and sign the Pre-screening Notice, you can use other instruments to request this more detailed secondary information. This approach can be helpful because many employees find the Individual Characteristics form complicated and difficult to read.

For example, you (or a helpful WOTC consultant) could ask these questions verbally, or in a private survey, or using an online questionnaire. You could then transfer the employee’s information onto the Individual Characteristics form and sign it yourself.

Step Three: Submit WOTC Application. Having collected the necessary information and forms, you now submit both forms as an application to the state workforce agency. The completed IRS 8850 Pre-screening Notice MUST be submitted within 28 days of the eligible employee’s start date.

Notice an important distinction. For this 28-day deadline, I referred to the employee’s start date – not their “offer date” or “hire date.” The 28-day calendar clock starts ticking on the employee’s start date. Of course, it’s possible that the offer, hire and start date could all be the same day. But not necessarily. The WOTC program distinguishes between each of these events and dates.

There are a variety of ways to submit WOTC applications to your state workforce agency. Most states publish instructions on their website. All will accept applications by mail (postmarked by the 28th day). Most can also accept applications by fax or through an manual-entry form on their website. A growing number of state’s can even accept hundreds of applications at once, uploaded within a spreadsheet.

Your state workforce agency will review your application and issue a certification if your new hire meets the criteria for WOTC eligibility. In most states, this takes anywhere from a few weeks to a few months or more.

After (and only after) the certification is approved, your company can then claim an amazingly valuable tax credit!

As always, if you have any questions, please reach out to the WOTC experts at WOTC Planet.

The Value of Hiring the Formerly Incarcerated

Have you considered the value of hiring the formerly incarcerated? The Work Opportunity Tax Credit (WOTC) might reward your business if you do (more about that later).

And yes, when I say, “formerly incarcerated”, I mean ex-felons. People who’ve been convicted of a felony and paid the price. Many of them have emerged from that difficult experience with a new and improved perspective on their lives.

Numerous major employers make a point of hiring offenders after their release from custody. The following list contains just a few that have gone very public with their pledge. Recognize any?

A Short List of Major Companies Pledged to Hire Ex-felons:

  • American Airlines
  • Ben & Jerry’s
  • Best Buy
  • Coca-Cola
  • CVS Health
  • Dropbox
  • Facebook
  • Gap
  • Hershey’s
  • Intel
  • Johns Hopkins Medical Center
  • Kellogg Company
  • Lyft
  • Microsoft
  • Prudential
  • Staples
  • Starbucks
  • Target

It’s called the Fair Chance Pledge and it involves a commitment to evaluate former offenders based on their current skills and reformed character. Hundreds of other employers have also formally made the pledge. Add to them thousands more, who without any formal pledge, simply recognize the unique contribution a truly reformed offender can offer.

My Personal Experience. As a volunteer at a local county jail for almost a decade, I became personally acquainted with many incarcerated people. While some were hardened criminals, many more were mothers, fathers, sons and daughters who recognized that they had made big mistakes and needed a chance to renew their lives.

Here are just a few reasons why it can be advantageous for you to offer that chance to them:

Prison Job Training. The Federal Bureau of Prisons has long recognized that education is an important correctional management tool that helps inmates to make good use of their time. As a result, every federal prison facility has a department offering education to inmates. Similar programs serve inmates in state prisons.

While programs vary greatly state-by-state, a tremendous number of inmates do take advantage of the educational, vocational and other training offered to them. This training creates skills that will be transferable to your business and across similar fields.

Loyalty. Employment creates one of the greatest challenges faced by individuals leaving incarceration, especially if they’re on parole. Maintaining a job is usually a condition of parole. Employees in this situation often reward their employer with a unique loyalty and appreciation.

Turn Over. Employee turnover creates a heavy burden in many industries. Individuals with a criminal record, however, generally have a more difficult time finding new employment. Consequently, they are also less likely to leave a job for trivial reasons.

Many formerly incarcerated individuals are truly putting the past and their previous bad behavior behind them. They are making a very personal and concerted effort to demonstrate who they are today and what they can offer to employers. With that in mind, hiring them can be a win for both your business and the employee.

WOTC Tax Credits. I promised I would get back to this topic!

A business that hires an ex-felon can receive up to $2,400 in federal income tax credit for each qualifying hire. The hire must take place within 1 year of the conviction date – or within 1 year of the date a person was released from incarceration after their conviction on a felony charge.

But don’t forget! ex-felons are not the only WOTC target group. There are 14 different ways a new employee can qualify your company for a federal income tax credit under the WOTC Program.

While I can’t explore all of these in this post, I can say this with confidence. For most employers, at least 10% to 20% of their existing hires would qualify. They simply need to collect the right information and process the paperwork correctly.

The amount of tax credit ranges from $2,400 to $9,600 per qualifying hire, depending on why they’re eligible. There is no limit to how many WOTC qualifying employees you can hire.

If you’re company is not using WOTC, you are probably overpaying your taxes.

Expand WOTC Again? Yes! Hire Veteran Students Using GI Bill

Congresswoman Jacky Rosen, a Democrat from Nevada, issued a press release describing her effort to expand the Work Opportunity Tax Credit (aka WOTC). House Resolution 6392, known as the Hire Student Veterans Act, would add a new target group to the WOTC program.

What does this legislation do? If passed, the Hire Student Veterans Act would offer employers a tax credit for hiring veterans of the armed forces who are “attending an institute of education” while receiving educational assistance from the GI Bill.  It would provide a maximum tax credit of $2,400—equal to 40% of the veteran’s first $6,000 in wages.  This is a standard WOTC scenario.

However, because this bill targets students (who are often not able to work full time), it proposes to lower the WOTC program’s usual 400-hours threshold.  For other target groups, if a qualifying employee works less than 400 hours, the rate used to calculate the tax credit must be reduced from 40% to 25%.  Under this bill, the 40% calculation rate kicks in with a minimum of just 120 hours worked.

Congresswoman Rosen:

“I’m proud to introduce this legislation that will help our student veterans using their GI Bill benefits find paid internships or jobs while in school. This bipartisan plan will help incentivize businesses to hire student veterans, giving them the opportunity to advance their careers while continuing the transition back into civilian life.”

This bill currently has three additional cosponsors, including Democrat Debbie Dingell (MI) and Republicans Leonard Lance (NJ) and Daniel M. Donovan, Jr. (NY).

We’ll keep you posted of any new developments for this bill.

Earn Real Tax Savings for Hiring Veterans

This is a follow-up to my recent post about tax benefits employers earn by hiring military veterans. In addition to strong skill sets and personal characteristics, many veterans can bring an added financial benefit to their employer through the Work Opportunity Tax Credit (or WOTC).

Employers naturally have questions about how veterans qualify. How long must a veteran have served? What if they have a service-connected disability? What are the specific tax credit amounts? Today, I’ll go into these details.

If you have questions that I don’t answer here, please feel welcome to email or call me at WOTC Planet.

Which Veterans Are Eligible? To be considered for WOTC, a veteran first must have served more than 180 days of active duty (not including training) – unless, of course, they were discharged sooner because of a service-connected disability. Additionally, their last period of “extended active duty” must have ended at least 61 days prior to their date of hire.

These are the two threshold considerations and most veterans you hire will pass them both with colors flying.

They must then also meet at least one of the WOTC-eligibility criteria shown in the table below, where I also list the maximum amount of tax credit your business can earn. Please notice that the amount varies, depending on why a veteran qualifies for WOTC.

Eligible-Veteran Criteria Maximum Tax Credit
Member of a family that received SNAP benefits for at least 3 of the past 15 months $2,400
Unemployed for at least 4 weeks (any 4) during the past year $2,400
Discharged within the past year and entitled to compensation for a service-connected disability $4,800
Unemployed for at least 6 months (any 6) during the past year $5,600
Entitled to compensation for a service-connected disability and unemployed for at least 6 months (any 6) during the past year $9,600

These tax credits amounts are per eligible employee and there is NO LIMIT to the number of WOTC-qualified employees you can hire. If your business can sustain 5, 10 or 50 new veterans annually, all the better for both you and them!

Keep in mind that non-veterans also qualify for WOTC. So, if a veteran’s circumstances do not match any of the veteran-specific criteria listed above, they might still qualify under another WOTC target group. We’ll cover those in another post.

How the Tax Credits Add Up. This part gets a little technical. WOTC tax credit amounts are equal to a percentage (40%) of the wages you pay the veteran during his or her first year of work. The amount of wage you can use in the calculation is capped at a maximum amount — and that amount varies according to why a veteran qualifies. This is why the tax credit amounts listed in the table above range between $2,400 and $9,600.

A few other details can also affect the tax credit amount. If a veteran works less than 400 hours before leaving your company, the percentage used to calculate the tax credit must be reduced from 40% to 25%. If the veteran works less than 120 hours, it’s reduced to 0%. That means no tax credit is available if an employee leaves or is terminated before they’ve worked at least 120 hours.

Walk the Line . . . but Make It Easy. Anything having to do with the military or federal tax code will have strict rules to follow, especially when you’re going to reduce your federal tax bill. To qualify for WOTC, new hires must provide eligibility information on or before the day you offer them a job. There are forms to complete, applications to submit and certifications that you need. The rules allow just 28 days to submit employee application to your state workforce agency.

It sounds difficult. It can be.

That’s where a good WOTC services provider can be very useful. Hint. . .  make it easy on yourself and look into it.

Veteran Hiring Programs. Hiring veterans is advantageous for many reasons. Their experience and training make them uniquely valuable employees. The financial benefit of the Work Opportunity Tax Credit is maximized for veterans and offers one more way veterans can be an asset to your organization.

Another Reason Veterans Matter to Small Business

If you’re a business owner, CPA or hiring executive, this is for you. Everyone knows that hiring veterans is both the right thing and the smart thing to do for many reasons.

Military veterans bring a unique set of skills to the civilian labor market. Few organizations like the military can teach, enforce and reward the characteristics of teamwork, initiative, leadership, organization and mission.

The military is also a highly diverse and talented group of people. As a result, veterans have deep experience working well with others. That experience instills respect and the ability to adapt and excel in a wide variety of circumstances.

What’s in it for the Business?

In addition to their strong skill sets and personal characteristics, veterans can bring an added financial benefit to their employer via the Work Opportunity Tax Credit (aka WOTC). WOTC (pronounced watt-see) is a federal tax credit available to employers who hire individuals with significant barriers to employment.

Despite their excellent credentials, veterans experience high unemployment rates and are therefore considered a valuable WOTC target group. This is particular true of disabled veterans who were injured while serving in the armed forces.

The tax credit amount equals a percentage of the wages earned by the veteran during his or her first 12 months of work. Depending on why they qualified, the maximum tax credit ranges between $2,400 and $9,600 for each qualifying veteran hired. This tax credit offsets their employer’s federal income tax, dollar for dollar!

Veteran Hiring Programs

Many businesses hire veterans but are not aware of the WOTC program. They are not requesting the required WOTC forms and are therefore missing out on significant tax savings. Once they understand the personal and financial benefits of hiring veterans who qualify for WOTC, a business is more likely to make it a real priority.

For example, what if a small company hires 10 veterans and 5 of them qualify for WOTC? That business has gained 10 excellent employees. If the 5 qualifying employees generate on average just $5,600 each, the business has also earned $28,000 in federal tax savings (5 x 5,600 = 28,000).

What’s the Catch?

There really isn’t one. Businesses that hire our nation’s veterans are offered the maximum WOTC tax credit available. It’s a win-win. Veterans find jobs while employers gain some of the very best employees available. And the WOTC program gives private business an extra financial incentive to help the men and women that have so faithfully and loyally served our country.