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SD Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) program was designed to help individuals from certain groups who consistently have had a particularly high unemployment rate. It is available only for new hires; that is, individuals previously employed by the employer are not eligible for WOTC.

NOTE: On October 4, 2004, the President signed into law the Working Families Tax-Relief Act of 2004 (P.L. 108-311). This legislation extends the WOTC program and the WtW tax credits, without change, for a two-year period through December 31, 2005. The reauthorization is retroactive to December 31, 2003 and applies to new hires that begin work for an employer after December 31, 2003 and before January 1, 2006.

Tax Credit Amount

The actual amount of the tax credit depends on several factors, including:

·      The number of hours the individual is employed during the calendar year starting on the date of hire;

·      The amount of wages earned; and

·      The target group of the applicant (for Summer Youth the maximum credit is less).

Hours and Wages

Individual employed for 400 hours or less during a calendar year: Before claiming the tax credit employers must employ the WOTC-eligible individual for at least 120 hours to qualify for a credit of 25% of wages for up to 400 hours work or up to $6,000 in qualified wages for a maximum credit of $1,500.

Individual employed for more than 400 hours during a calendar year: Employers must employ the individual for at least 400 hours or more to qualify for a credit of 40% of up to $6,000 in qualified wages for a maximum credit of $2,400.

For Summer Youth: The tax credit for this target group is calculated at a rate of 25% of the qualified first year's wages up to $3,000. This allows a maximum credit amount of $750. For those employees working at least 400 hours or more, the credit is calculated at the rate of 40% of the qualified wages up to $3,000 for a maximum tax credit of $1,200.

Target Groups

Each of the following target groups is linked to a description below:

·       Qualified TANF Recipients (A)

·       Qualified Veteran (B)

·       Qualified Ex-Felon (C)

·       EZ/EC/RC High-Risk Youth (D)

·       Vocational Rehabilitation Referral (E)

·       EZ/EC/RC Qualified Summer Youth Employee (F)

·       Qualified Food Stamp Recipient (G)

·       Qualified Supplemental Security Income (SSI) Recipient (H)

Qualified TANF Recipients (A):

Individuals who received AFDC/TANF benefits (or benefits from successor programs) for any 9 months during the 18-month period preceding the hiring date. (See Also: The Welfare to Work Tax Credit.)

Qualified Veterans (B):

Veterans who:

·      Are members of a family that received Food Stamps for at least a 3-month period within the last 15 months; and

·      Have served on active duty (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days, or were discharged or released from active duty in the Armed Forces of the United States for a service-connected disability; and

·      Did not have any day during the 60-day period ending on the hiring date that was a day of "extended active duty" in the Armed Forces of the United States. The term "extended active duty" means a period of more than 90 days during which they were on active duty, other than active duty for training.

NOTE: This target group includes veterans who were dishonorably discharged.

Qualified Ex-Felons (C)

Individuals who:

·      Have been convicted of a felony* under any statute of the United States or any State; and

·      Have a hiring date which is not more than one (1) year after the last date on which they were convicted or were released from prison; and

·      Are members of an economically disadvantaged** family.

NOTE: Ex-Felons who are participating in a transitional program; e.g., "work release," are eligible for the WOTC program if they were convicted of a felony and are members of an economically disadvantaged** family.

* Individuals are considered as convicted if a State Court places them on probation without a finding of guilty, but only if the court considers this to have been a "conviction," that is, as "deferred adjudication".

** A member of an economically disadvantaged family means being a member of a family that had an income during the 6 months immediately preceding the earlier of the month in which such income determination occurs or the month in which the hiring date occurs, that, on an annual basis, would be 70% or less of the U.S. Department of Labor's most current "Lower Living Standard Income Levels" (LLSILs). A determination that an individual is a member of an economically disadvantaged family is valid for a 45-day period beginning on the date of the determination.

NOTE: The 70% LLSIL numbers can be found at: http://www.doleta.gov/llsil/.

EZ/EC/RC High-Risk Youth (D)

Individuals who:

·      Are at least age 18, but not yet age 25, on the hiring date; and

·      Live within an empowerment zone (EZ), enterprise community (EC) or renewal community (RC).

NOTE: In the case of high-risk youth, the term "qualified wages" must not include wages paid or incurred for services performed while they lived outside an EZ, EC or RC.

Vocational Rehabilitation Referrals (E)

Individuals who:

·      Have a physical or mental disability that constitutes or results in a substantial handicap to employment; and

·      Are referred to the employer while receiving - or within two years of completion of - rehabilitative services under an Individualized Plan for Employment (IPE) approved by the South Dakota Division of Rehabilitation Services (DRS), or a vocational rehabilitation program for veterans.

EZ/EC/RC Qualified Summer Youth Employees (F)

Individuals who:

·      Perform services for the employer between May 1 and September 15; and

·      Have attained age 16, but not yet age 18, on the hiring date or, if later, on May 1 of the calendar year involved; and

·      Have not been employed by the same employer prior to the 90-day (summer) period between May 1 and September 15; and

·      Live within an empowerment zone, enterprise community, or renewal community. ("Qualified wages" must not include wages paid or incurred for services performed while the summer youth lived outside of the zone.)

NOTE: Special Rule for Continued Employment. An individual, who was a "Qualified Summer Youth" employee and meets the eligibility criteria for another target group, may be recertified and qualify the employer to claim the remainding balance of the one-year tax credit. The total period of eligibility for the credit, including the time the individual is certified as a "Qualified Summer Youth" employee, cannot exceed one year. In those cases where the second certification is issued for the Welfare to Work (WtW) target group, the employer may qualify for a two-year credit.

Qualified Food Stamp Recipients (G)

Individuals who:

·      Have attained the age of 18, but not yet age 25, on the hiring date; and

·      Are members of a family

o    that is receiving assistance under a Food Stamp Program under the Food Stamp Act of 1977 for the 6-month period ending on the hiring date; or

o    that received such assistance for at least 3 months out of the 5-month period ending on the hiring date [and who are able-bodied adults without dependents who have been determined ineligible to participate in the Food Stamp Program as the result of a failure to comply with the program's work requirements].

Qualified Supplemental Security Income (SSI) Recipients (H)

Individuals who:

·      Have received Supplemental Security Income (SSI) benefits for any month ending within the 60-day period ending on the hiring date.

See also:

Welfare to Work Tax Credit (WtWTC)

Career Learning Center of the Black Hills Services

Source:

http://www.uses.doleta.gov/pdf/ETA_HB_408_Text_11_2002.pdf

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SD Department of Labor - Overview

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