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A Closer Look at Target Employee Groups for the Work Opportunity Tax Credit

This article is a follow-up to our July 2009 Tax Highlights discussion of Overlooked Business tax credits and briefly describes the target group of potential employees that could generate tax credits for your business. Congress has identified 12 different categories of potential employees for your business. As an employer looking to reap the benefits of the Work Opportunity Tax Credit the most significant step in the process of claiming the credit is often the identification of potential candidates. While there are firms that will assist you in claiming these credits (for a fee, of course,) knowing the qualifications for each group will assist you in estimating the potential benefit. Each target group has unique characteristics that distinguish it from the others in the overall WOTC scheme.  In practice, whether a potential employee may qualify is not known until after the person has been given an offer of employment.  However, some state agencies and non-profit organizations have conducted up-front screening and may be able to send potential recruits to your business that do qualify for the credit.

Target Group One - Qualified IV-A Recipients
Qualified IV-A Recipients consist individuals who are members of a family receiving assistance under Part A of Title IV of the Social Security Act relating to the Temporary Assistance to Needy Families Program, also known as the TANF Program.  In order to qualify as a member of this group, individuals must have received TANF program assistance for any  nine months in the 18 month period before they hired.  

For purposes of the WOTC, “family member” refers to the family member specifically listed on the grant.  Only those recipients specifically noted on the TANF grant are eligible for the WOTC.  It should be noted as well that Medicaid and Medicare recipients do not qualify as IV-A benefits. 

Target Group Two - Qualified Veterans
Qualified Veterans can be any of the following:

• A  Veteran who is a member of a family receiving benefits under a food stamp program authorized by the Food Stamp Act of 1977 for at least three months during the previous 15 months before hiring. 
• A Veteran entitled to compensation for a service connected disability and is hired within 1 year after being discharged or released from active duty in the United States Armed Forces.
• A Veteran who is entitled to compensation for a service connected disability and was not employed for at least 6 months in the year before hiring.  

In order to be considered a veteran, the individual must have served on active duty, which does not include training time, in the U.S. Armed Forces for more than 180 days. The individual could also have been discharged or released from active duty for a service-connected disability. However, the individual must not have been on active duty (not including training) for more than 90 days that ended during the 60 day period ending on the hiring date. 

Target Group Three - Qualified Ex-Felons
A Qualified Ex-Felon is an individual who has been convicted of a felony under any federal or state law, and is hired within 1 year after he or she was convicted or released from prison for that felony.

Target Group Four - Designated Community Resident
A designated community resident, formerly referred to as a high-risk youth, are individuals who are 18-39 years old and currently reside in an empowerment zone, a renewal community, or a rural renewal county.  Note that the employee must reside in one of the noted areas – not the employer. Chicago, Illinois and Gary, Hammond, and East Chicago Indiana each have part of their city area covered by an empowerment zone and/or renewal community. The following web site gives more information about the locations of each of these areas, www.hud.gov/crlocator.

 A rural renewal county is a rural area that lost population during the 5-year periods 1990 through 1994 and 1995 to 1999. There are eighteen counties in Illinois, thirty counties in Iowa and only one county in Indiana that meet this requirement. 

Target Group Five - Vocational Rehabilitation Referral
This group consists of people who have a physical or mental disability that would result in substantial handicap to employment. They also need to be referred to the employer upon completion of, or while receiving, rehabilitation services by a state approved rehabilitation agency, an employment network under the Ticket to Work program, or the Department of Veterans Affairs.

Target Group Six - Summer Youth Employee
These are people who meet all of the following: they are hired between May 1st and September 15th, are at least 16 years old but not yet 18 years old on the hiring date or May 1st (whichever is later), have never worked for the employer before, and live within an empowerment zone or renewal community.

Target Group Seven - Recipient of SNAP Benefits (Food Stamps)
For this group, the individual must be between the ages of 18-39, and be a member of a family that has received food stamps for 6 months prior to hiring. The individual can also qualify if he or she is no longer eligible for assistance under the Food Stamp Act of 1977, but the family received food stamps for at least 3 months out of the last five months before the hire date.

Target Group Eight - SSI Recipients
These are individuals receiving supplemental security benefits for any month ending within the 60 day period prior to the hire date.

Target Group Nine - Long Term Family Assistance Recipient
This group consists of a member of a family that has received Temporary Assistance to Needy Families payments for at least 18 consecutive months prior to hiring. Individuals can also qualify if they receive TANF payments for any 18 months (consecutive or not) beginning after August 5, 1997 and the earliest 18 month period ends during the past two years, or he or she stopped being eligible for TANF payments because federal or state law limited the time they were able to receive TANF benefits and he or she is hired within 2 years after their eligibility for TANF benefits expires.

Target Group Ten - Hurricane Katrina Employee
As the name indicates, these are individuals who had a main home in what the IRS refers to as the “Gulf Opportunity Zone” when the hurricane hit on August 28, 2005. These individuals also need to be working principally in the Gulf Opportunity Zone and hired during a four year period after August 28, 2005. The good news is that this group does not require certification, but the qualifications are stringent.

Target Group Eleven - Unemployed Veterans
Unemployed Veterans are persons have been discharged or released from active duty in the U.S. Armed Forces any time within 5 years prior to their hiring, and who have received Unemployment Benefits for at least 4 weeks during the 1 year period prior to their hiring. In order to be considered a veteran, the individual must meet the same requirements of duty of Target Group #2.

Target Group Twelve - Disconnected Youth
Disconnected youths are people between age 16 and 24, who are not regularly attending any secondary, technical, or post secondary schools for at least 6 months prior to hire. They also cannot be regularly employed for at least 6 months prior to being hired. 

As one can see, the definitions for each group can range from very simple, to quite complex. The important concept is to be aware that these groups exist, and that any potential hire could possibly qualify as a member of these groups. This way, employers can take advantage of the credits that em[ployees generate, and can save money.

For further information please contact Andy Popielec at 312.980.2966, Michael 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.