Question: I heard there's a credit for hiring certain groups of workers, such as veterans or ex-felons. Is that the same thing as the work opportunity tax credit?
Yes. The work opportunity tax credit (WOTC) provides an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs.
The Protecting Americans from Tax Hikes Act of 2015 extended the WOTC for members of targeted groups hired after December 31, 2014, and before January 1, 2020. The benefit is a 40 percent credit generally on the first $6,000 of wages paid to new hires in the first year of employment.
You must obtain certification from your state employment security agency that an individual is a targeted group member before you claim the credit. Generally, you obtain certification by submitting Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the state employment security agency. You must submit the form not later than the 28th day after the individual begins work for you. However, please see Notice 2016-22 for details of transitional relief and Notice 2016-40 for additional transitional relief for the Form 8850 submission deadline.
Newly hired individuals from the following targeted groups might qualify you for this tax credit:
- a long-term family assistance recipient,
- a qualified recipient of Temporary Assistance for Needy Families (TANF),
- a qualified veteran,
- a qualified ex-felon,
- a designated community resident,
- a vocational rehabilitation referral,
- a summer youth employee,
- a Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipient,
- an SSI recipient, or
- a qualified long-term unemployment recipient (for individuals who begin work after 2015)
Calculate the credit by completing Form 5884, Work Opportunity Credit, with the business' tax return or on Form 3800, General Business Credit, as appropriate. See the Instructions for Form 5884 for more information.
Category: Childcare Credit, Other Credits
Subcategory: Other Credits