Publications

• Alerts
• Articles
• Business Surveys
• Construction Edge
• Insurance Edge
• Legal Talent
• Manufacturing Edge
• Not-for-Profit Edge
• SEC Edge
• Strategy Insights
• Surviving the Upturn
• Tax Highlights

One Overlooked Business Tax Credit—The Work Opportunity Tax Credit!

In today’s economy, the concept of “squeezing every dollar” has become a necessity. Businesses are looking for ways to cut expenses so that they are not only competitive, but also to keep the doors open. Looking at the federal government as a source of extra money is not often a business owner's first choice. However, there are several programs designed to provide businesses with tax incentives in hope of getting the economy moving again. One such program is the Work Opportunity Tax Credit Program.

Often referred to as WOTC, this program is one in a set of strategies put forth by Congress that is designed to move certain disadvantaged people into gainful employment and obtain on-the-job experience. As the name implies, WOTC is a tax credit, which means a dollar-for-dollar reduction of a tax bill. As a credit, WOTC allows corporations or individuals to increase any tax overpayments or decrease tax bills. For S corporations and partnerships, the credit will flow through to the shareholders or members, increasing their potential refunds or reducing the total amount due.

WOTC applies to employers who supply their work force with newly hired people who fall into one or more of 12 target groups. These groups range from ex-felons and recipients of various types of public assistance to summer youth employees, disconnected youth and even veterans of the armed forces returning to employment. Employers who hire from these target groups are eligible for substantial federal tax credits. For example, each new summer youth hire could potentially generate a $1,200 credit, each new adult hire could generate a $2,400 credit and a disabled veteran hire could generate $4,800 of credit.

Obtaining WOTC is essentially a two-step process. The first step involves preparation of two forms, IRS Form 8850, and either U.S Department of Labor Form 9061 or 9062. The most difficult step is to have the new employee complete page 1 of Form 8850 by the day the offer of employment is made. If the applicant is able to check any of the boxes on page 1, the applicant will sign page 1 and return it to the employer. The employer has 28 days from the date the applicant is hired to fill out page 2 of Form 8850 and have the employee complete Form 9061 or sign Form 9062. Form 9062 is used when the applicant has been conditionally certified by a state work force agency or other participating agency, Form 9061 is used for everyone else.

Once Form 8850 and Form 9061 or 9062 are complete, the employer mails the forms to the appropriate state work force agency, which reviews the applications and determines if the applicant qualifies as a member of one of the target groups. Please note that these forms are not mailed to the IRS or the U.S. Department of Labor. Once this certification is received from the state work force agency, the potential credit has been established. In Illinois, that agency is the Illinois Department of Employment Security.

The second and final step in the process of qualifying for the WOTC is for the employee to meet the minimum number of hours worked requirement. Each target group has different requirements. For example, all new adult employees must work a minimum of 120 hours, while summer youth employees must work at least 90 days from May 1 to September 15. Once the minimum requirements have been achieved, the employer is entitled to claim the WOTC on their next income tax return.

Claiming WOTC is an effective way for employers to generate tax credits and produce larger tax refunds. Still, most employers do not realize these benefits when they hire new people. Many employers believe the process is too complex. A little administrative effort could go a long way toward reaping some very large benefits. As an alternative, many payroll processing firms and other employment consulting firms will process all the paperwork for a fee (generally 15% to 20% of the potential credit).

For further information, please contact Andy Popielec at 312-980-2966, Mike Calahan at 312-980-2996 or your Blackman Kallick representative.
 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.