Work Opportunity Tax Credit Expanded

On December 18, 2015, the PATH Act (Protecting Americans from Tax Hikes Act of 2015) was signed into law.

See also Tax Services

The new legislation extended several popular tax provisions and even made some permanent. One of the incentives impacted was the Work Opportunity Tax Credit (WOTC), which was extended for a period of five years. Beyond this, a new category of qualifying employees known as, long term unemployed; have been added to the target group. To help clients, prospects and others understand the change and impact to thir company, Hanson &Co., has provided a brief summary of highlights below.

Work Opportunity Tax Credit (WOTC)

The WOTC is a federal tax credit available to employers who hire and retain individuals from several target groups, including veterans, who historically have faced significant employment barriers. Any private U.S. employer that pays taxes is eligible for the WOTC program, along with certain qualified tax-exempt organizations, and there is no limit on the number of individuals an employer can hire and claim for the tax credit. Approximately $1 billion in tax credits are claimed each year under the WOTC program.

The amount of tax credit employers can claim depends upon the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours worked. For taxable employers, the credit is equal to 25% (if the employee works at least 120 hours) or 40% (if the employee works at least 400 hours) of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs. Qualified tax-exempt employers can claim a lower percentage.

WOTC Changes and Extensions

The recent updates to the WOTC include the following changes:

  • The credit has been renewed retroactively to January 1st, 2015 and extended for five years, which includes employees hired through December 31, 2019. This also applies to any individual who began work after December 31, 2014, the previous WOTC extension expiration date, so employers can collect credits on qualified individuals who were hired anytime during 2015 as well.
  • For employees hired after December 31, 2015, a new targeted employee group was added: long-term unemployment recipient. New hires will qualify for this category if they are in a period of unemployment lasting at least 27 consecutive weeks (as certified by the designated local agency) and received state or federal unemployment compensation during any part of that unemployment.If you hired someone in an eligible category this year, you only have 28 days from the date of hire to submit the certification paperwork to the state. Since the WOTC was retroactively extended through 2014, it is possible that transition relief will temporarily waive the 28-day deadline for WOTC applications as in prior years. However, the IRS has not yet issued an guidance on the matter.

Contact Us

The WOTC is a beneficial tax credit for those Denver and Colorado companies that hire qualifying individuals. The extension of the credit and changes mean additional companies may be able to claim the incentive. If you are interested in learning more about the WOTC and available benefits, Hanson & Co. wants to help. For additional information please contact us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.