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Work Opportunity Tax Credit (WOTC)

This topic describes the Work Opportunity Tax Credit (WOTC) in a question and answer format. It contains a number of different sections, which you may either read in sequence or jump directly to specific sections in the following list:

· What Is The Work Opportunity Tax Credit?

· What New Hires Can Qualify Employers For WOTC?

· How Can Employers Participate In The WOTC?

· Additional Information

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 both the Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work Tax Credit (WtWTC) programs, 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.

What Is The Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC), authorized by the Small Business Job Protection Act of 1996 (P.L. 104-188), is a federal tax credit that encourages employers to hire nine targeted groups of job seekers by reducing employers’ federal income tax liability by as much as $2,400 per qualified new worker; $750, if working 120 hours or $1,200, if working 400 hours or more, per qualified summer youth.

The WOTC is one tool in a diverse toolbox of flexible strategies designed to help people move from welfare to work and gain on-the-job experience. It joins other education and job training initiatives and targeted tax credits, that help American workers prepare for good jobs; ease the transition from job to job; and create high performance workplaces.

What New Hires Can Qualify Employers For WOTC?

· WOTC applies only to new employees hired after September 30, 1996, and before January 1, 2006

· The new employee must belong to one of nine target groups:

o    A member of a family that is receiving or recently received Temporary Assistance to Needy Families (TANF), formerly known as Aid to Families with Dependent Children (AFDC),

o    An 18-24 year old member of a family that is receiving or recently received Food Stamps,

o    An 18-24 year old resident of one of the Federally designated Empowerment Zones (EZs), Enterprise Communities (ECs), or Renewal Communities (RCs),

o    A 16-17 year old EZ/EC or RC resident hired between May 1 and September 15 as a Summer Youth Employee,

o    A veteran who is a member of a family that is receiving or recently received Food Stamps,

o    A disabled person who completed or is completing rehabilitative services from a State or the U.S. Department of Veterans Affairs (VA),

o    An ex-felon who is a member of a low income family,

o    A recipient of Supplemental Security Income (SSI) benefits, and/or

o    The New York Liberty Zone Business Employee (requires no certification).

· All new adult employees must work a minimum of 120 or 400 hours; Summer Youth must work at least 90 days, between May 1 and September 15.

How Can Employers Participate In The WOTC?

To receive certification that a new employee qualifies the employer for this tax credit, the employer must:

· Complete the one page IRS Form 8850 by the day the job offer is made.

· Complete either the one page ETA Form 9061 or Form 9062

o    If the new employee has already been conditionally certified as belonging to a WOTC target group, complete the bottom part of ETA Form 9062 (and sign and date it), that he or she has been given by a State Employment Security Agency or participating agency.

o    If the new employee has not been conditionally certified, the employer and/or the new employee must fill out and complete, sign and date ETA Form 9061

· Mail the signed IRS and ETA forms to the employer's State Workforce Agency. The IRS form must be mailed within 21 days of the employee's employment-start date.

To get IRS Form 8850, the Work Opportunity and Welfare-to-Work Tax Credits Pre-Screening Notice and Certification Request, and instructions, call the IRS at 1-800-829-1040 or download the form and separate instructions in PDF format (requires Adobe Acrobat Reader) from the IRS website at:
http://www.irs.gov/pub/irs-pdf/f8850.pdf
http://www.irs.gov/pub/irs-pdf/i8850.pdf

Materials available from DOL in PDF format (requires Adobe Acrobat Reader) and the corresponding URL include:

· ETA Form 9061, the WOTC Individual Characteristics Form:
http://www.uses.doleta.gov/pdf/Appendix_II/Appendix_II__1_ETA_9061.pdf

· Employer Tax Credit Brochure:
http://www.uses.doleta.gov/pdf/brochure.pdf

· Directory of State WOTC Coordinators:
http://www.uses.doleta.gov/pdf/SWADirWOTCCoordsRev6-04.pdf

· Directories of National and Regional WOTC Coordinators:
http://www.uses.doleta.gov/pdf/RegCoordsDirRev6-04.pdf

Additional Information

For more information about the WOTC and the WtW tax credits:

· Call or visit your local public State Workforce Agency WOTC Coordinator (use the above mentioned State Directory)

· Call the U.S. Department of Labor Regional WOTC Coordinator nearest you (use the above mentioned Regional Directory)

· Call Karin Loverud at the Internal Revenue Service (IRS) at 202-622-6080

For information about EZ/EC/RC locations, call 1-800-998-9999 or visit their HUD website at:
http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm

ETA Handbook No. 408, Third Edition, November 2002 for the Work Opportunity Tax Credit Program and the Welfare-to-Work Tax Credit, from the U.S. Employment Service/ALMIS, U.S. Department of Labor, Employment and Training Administration is available in PDF format (requires Adobe Acrobat Reader) online at:
http://www.uses.doleta.gov/pdf/ETA_HB_408_Text_11_2002.pdf

See also:

Tax Credit Programs for Employers - Overview

Welfare-to-Work Tax Credit (WtWTC)

Source

Information for this topic was drawn from the DOL website at:
http://www.uses.doleta.gov/wotcdata.asp

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