Recent news about WOTC hiring credits being retroactively reinstated applied to eligible new hires on boarded during 2014, but WOTC transition relief applied only to employers who had continued to submit their WOTC applications timely throughout the credit lapse in 2014.
On February 19th, the IRS issued a Notice N-2015-13 providing WOTC transition relief to employers who neglected to keep up with timely WOTC applications throughout the credit lapse.
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 this is a substantial extension.
Though such a lucky break is atypical for employers who have come to expect regular WOTC credit lapses, it is not unheard of. Some may remember that similar but shorter WOTC transition relief periods were extended with the Vow to Hire a Hero Act of 2011 and the American Taxpayer Relief Act of 2012.Find out about all the steps necessary for obtaining maximum WOTC benefits by using this comprehensive guide.
Countdown to April 30th
Employers now have a limited window of opportunity to take advantage of WOTC transition relief and apply retroactively for WOTC credits eligible for new hires employed between January 1, 2014 and December 31, 2014. This window closes on April 30th, 2015, which is just enough time to take advantage of a major savings opportunity.
Not many businesses have been committed to hiring credits in the past, but there are many reasons why employers should go after WOTC. They can get a bottom line tax savings of up to $9,600 per eligible hire. Unless they are already screening for eligible hiring credits, there is no way for them to know what kind of savings they are passing up. If they apply retroactively and start screening employees, it should be easy for employers to see how much they stand to gain.
Estimate of how WOTC Credits Lead to Employer Savings
An estimated 10-25% of all new hires are WOTC-eligible, with variation across industries and geographic regions. 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 the prior year, 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 x .15 percent WOTC-eligible = 90
Some of those eligible hires may not be eligible on account of not having 100% form completion rate and the state agency not approving all of our submitted forms.
90 WOTC-eligible hires – 15 lost to poor paperwork / disqualification = 75
We now have 75 WOTC-eligible employees from the prior year where 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
Get Ready to Submit a WOTC Credit Request
If the request was denied despite meeting all of the requirements, the appropriate State Workforce Agency (SWA) must now revisit and re-process certification requests. If the claim was denied because it did not meet the necessary requirements, employers may want to consult with a tax credit expert as to whether it makes sense to apply retroactively.
WOTC transition relief resulted in the bulk of WOTC credit applications submitted throughout 2014 that are currently being processed by the SWAs.
Can Your Business Benefit from WOTC
The Work Opportunity Tax Credit continues to be a tax break for qualified wages paid to new employees from certain targeted groups. The credit has undergone several changes since it was introduced nearly 40 years ago. The most recent extension of this credit, under the Protecting Americans from Tax Hikes (PATH) Act of 2015, retroactively renewed the credit for 2015 and extended it through 2019.
Documentation and administration are critical to maximum credit capture, and it is important to comply with the WOTC certification criteria. Whether WOTC benefits bottom line of a business or presents an administrative burden for a company, depends on how employers manage this program. Automating all stages of applying for this tax credit, including screening employees for eligibility, processing and filing state and federal forms, tracking applications, and monitoring qualified employees’ time and wages, ensures receiving the maximum tax credit. So, it is high time for employers to outsource WOTC process in order to save time, money and increase ability to benefit from this federal tax credit program by making more money available for their business.Find out how to outsource WOTC administration and make the entire hiring process a more straightforward and rewarding experience.
Editor’s Note: This post has been updated for accuracy and comprehensiveness.