A Big Savings Opportunity for Employers Right Now
In addition to retroactively reauthorized WOTC hiring credits going back to 1/1/12 through the end of 2013 as part of the American Taxpayer Relief Act “ATRA”, as per IRS Notice 2013-14, employer claims for WOTC credit on hires going back to the start of 2012 will be considered timely if filed by April 29, 2013.
Because veterans were the single WOTC target group that remained eligible for employer credits throughout the course of 2012 under the VOW to Hire Veterans Act of 2011, there is a distinction between dates of eligibility for retroactively reauthorized WOTC hiring credits. This depends on whether the eligible hire is a qualified Veteran or a member of another WOTC-eligible category.
Specifically, the extended filing date for retroactively reauthorized WOTC hiring credits applies as follows:
- For non-veteran WOTC hires, employers may claim the credit for those hired on or after January 1, 2012 and on or before March 31, 2013.
- For WOTC-qualified veterans, retroactively reauthorized WOTC hiring credits apply on hires made on or after January 1, 2013 and on or before March 31, 2013.
Normally, to qualify for WOTC:
- The applicant must complete pre-certification Form 8850 on or before date of hire, and
- Employers must submit the completed Form 8850 to the state workforce agency within 28 days from the first day of work, so even for WOTC-qualified veteran hires, this is a substantial extension.
The National WOTC Coordinator has confirmed that retroactively reauthorized WOTC hiring credits apply to both the applicant or new hire as well as the employer portions of the form so that employers can go back for new hires within the relevant time frame and together with the employee complete a Form 8850 for submission, even if they were not pre-screened at or before hiring.
It is estimated that approximately 10-25% of all new hires are WOTC-eligible, with variation across industries and geographic regions. This is credit that is traditionally under-used by employers, but perhaps these unique circumstances will change that.
- The employer credit from WOTC is typically 40% of the first $6,000 wages earned by a qualified employee. So, for an employer that hired 50 new employees in each month of 2012, assuming 15% of those hires are WOTC-eligible, this translates to 90 WOTC-eligible hires for the year:
50 hires per month x 12 months = 600
600 x .15 percent WOTC-eligible = 90
- Assuming some of those eligible hires are lost on account of not having 100% form completion rate and the state agency not approving all of our submitted forms as applicant information may not meet actual eligibility criteria:
90 WOTC-eligible hires – 15 lost to poor paperwork/disqualified = 75
- In case there are 75 WOTC-eligible employees from 2012, and all of them worked full-time and earned at least $7.50/hr.:
75 employees x .4 WOTC Credit Rate x $6,000 EE Wages = $180,000 in retro WOTC savings from 2012
All things considered, this is a significant and important potential offset to the elevated employment taxes that employers have been enduring in recent years.Whether or not you have WOTC program in place, use this comprehensive guide to learn how you can extract maximum savings from this Federal credit program.
WOTC Still Provides Measurable Savings
Since its creation in 1996, the WOTC Program has been renewed 11 times. In 2015, the WOTC was extended through 2019 as part of the Protecting Americans from Tax Hikes Act of 2015. This is the first time that WOTC received a 5-year renewal which only proves how successful it is.
Being a program that creates work opportunities for millions while providing businesses the capital to expand their businesses and create even more jobs, WOTC is a unique incentive for employers. There is no limit on the number of individuals an employer can hire to qualify for this tax credit, and there are a few simple steps to follow to apply for WOTC, especially if employers opt for an automated WOTC service. Employers can claim about $9,600 per employee in tax credits per year under the WOTC program if they hire and retain individuals from target groups with significant employment barriers.
Nowadays, technology makes it even easier for companies to take advantage of the WOTC program and invest in their growth by significantly reducing tax liability. What makes it even more appealing is an opportunity to make a huge difference for target group members who want to get off social programs and go back to work.
Editor’s Note: This post has been updated for accuracy and comprehensiveness.Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.