Labor and Economic Opportunity - Work Opportunity Tax Credit Program

Work Opportunity Tax Credit Program

The Work Opportunity Tax Credit is a federal credit available to private-for-profit employers who hire from specific targeted groups of people that have in the past experienced difficulty in securing employment. For the first year of employment, WOTC allows maximum credits of $4,800 to $9,600 for disabled veterans, $4,000 for long-term recipients of Temporary Assistance to Needy Families (TANF), and $2,400 for all other target groups. There is an additional $5,000 credit for long-term TANF recipients who are employed for a second year. The maximum credit amounts for tax-exempt organizations can vary from $1,560 to $6,240. The credit, or any unused portion of the credit, can be carried back one year or forward 20 years from the year in which the employer claims the credit.

The VOW to Hire Heroes Act of 2011 changed the Work Opportunity Tax Credit (WOTC) program by adding two new categories to the existing qualified veteran targeted group. In addition to the employers that can currently benefit from the WOTC, certain tax-exempt employers can also apply for the credit if they hire a qualified veteran. The Act allows employers to claim the WOTC for veterans certified as qualified veterans and who begin work after November 21, 2011.

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extends the Work Opportunity Tax Credit (WOTC) retroactively for hires from December 31, 2014 to December 31, 2019. The PATH Act also modified WOTC to include a new target group, a Qualified Long-term Unemployment Recipient, which is defined as any individual who is certified by the designated local agency as being in a period of unemployment which –

is not less than 27 consecutive weeks, and
includes a period in which the individual was receiving unemployment compensation under State or Federal law.

Qualified "tax-exempt" organizations are eligible to claim the WOTC for a credit of up to $6,240 if their new hire meets the criteria for the Qualified Veteran target group.

A new hire qualifying as a member of at least one of the Work Opportunity target groups must also work at least 120 hours for the employer to claim a 25% credit and at least 400 hours for the employer to claim a 40% credit on the first gross wages paid in the first year of employment.

The maximum first gross wages paid in the first year of employment are $12,000 for the disabled veteran, $10,000 for a long-term family assistance recipient, and $6,000 for all remaining Work Opportunity target groups.
For hiring a long-term TANF recipient and keeping the individual employed into a second year, the employer can claim a 50% credit on the first $10,000 in gross wages paid in the second year of employment. For hiring one long-term TANF recipient and keeping that individual employed for two years, the employer could receive a Work Opportunity Tax Credit of $9,000!

WORK OPPORTUNITY TARGET GROUPS

Short-term TANF recipient: Must be a member of a family receiving temporary assistance for needy families (TANF) for any 9 months during the 18-month period that ends on the hire date.
Long-term TANF recipient: Must be a member of a family who received TANF for at least 18 consecutive months ending on the hire date; or has received TANF for a total of at least 18 months, whether or not consecutive, between August 5, 1997 and the hire date and at least one payment is within two years of hire; or whose TANF eligibility expired under a federal or state law after August 5, 1997, and was hired within two years after their eligibility expired.
Qualified veteran: To be considered a veteran, the applicant must have served on active duty for more than 180 days or have a service-connected disability, and not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hire date. In addition, the qualified veteran must meet the criteria set forth in (a), (b), (c), (d), or (e), below:

(a) Veteran SNAP (food stamp) recipient: Must be a member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period during the 15-month period ending on the hire date; OR

(b) Disabled veteran: Must be entitled to compensation for a service-connected disability and is hired not more than 1 year after discharge or release from active duty in the U.S. Armed Forces; OR

(c) Disabled and unemployed veteran: Must be entitled to compensation for a service-connected disability and has received unemployment compensation for aggregate periods totaling at least 6 months during the 12 months prior to hire; OR

(d) Unemployed veteran: Must have received aggregated periods of unemployment compensation totaling at least 4 weeks, but less than 6 months, during the 12 months prior to hire; OR periods of unemployment compensation totaling 6 months or more in the 12 months prior to hire.

Food stamp recipient, age 18 to 39: Must be 18 to 39 on or before the hire date and a member of a family that has received SNAP (food stamps) benefits for the 6-month period that ends on the hire date.
Vocational rehabilitation work plan participant: Physically or mentally disabled person who is either currently on, or has completed a work plan with completion being within 2-years prior to the hire date. Referrals are either from a state agency, the Department of Veterans Affairs, or an employment network under the Ticket-to-Work program.
SSI recipient: Must be on supplemental security income (SSI) for any month ending during the 60-day period ending on the hiring date.
Ex-felon: Must have a felony conviction or release date that is not more than 1 year prior to the hire date.
Designated community residents: Must be ages 18 to 39 on or before hire and live in the Rural Renewal Counties (RRC) of Gogebic, Marquette and Ontonagon, or Detroit's Empowerment Zone.

Qualified long-term unemployment recipient: any individual who is certified by the designated local agency as being in a period of unemployment which –

is not less than 27 consecutive weeks, and
includes a period in which the individual was receiving unemployment compensation under State or Federal law.

Eligible new hires cannot have any prior work history with the employer, cannot be a relative of the employer and must be a U.S. citizen or permanent resident.

APPLYING FOR THE WORK OPPORTUNITY TAX CREDIT

When applying for the credit, the employer must submit to the UIA two forms for each newly hired employee who may qualify as a target group member. Forms are available on the UIA’s website or by calling the agency’s WOTC Unit toll free at 1-800-482-2959.

IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.” –Employers use this non-discriminatory form at the time of hire to “pre-screen” applicants for potential target group membership. The signed original 8850 must be postmarked by the U.S. Postal Service no later than 28 days from the employee’s start date. If the 28^th day falls on a Saturday, Sunday or federal holiday, UIA will accept the form on the next business day. Applications not fully completed and/or submitted late will be denied.

ETA Form 9061, “Individual Characteristics Form” – The employer completes this form after deciding to hire the job seeker. The form must be fully completed and signed by the person completing the form (see reverse side of form for who may sign). There is no time limit for submitting ETA Form 9061. Therefore, it may be mailed or faxed separately from IRS Form 8850. However, applications will be processed faster when both forms are mailed together.

Obtaining documentation. Employers may need to submit documentation to prove that the new hire is a target group member. Requirements for specific target group documentation may be obtained through the UIA website at www.michigan.gov/uia or by calling the WOTC Unit toll free at 1-800-482-2959.

SPECIAL NOTE: Application processing is faster when UIA receives a timely and correctly completed package that includes IRS Form 8850, ETA Form 9061 and documentation supporting the employee’s target group membership.

For expedited processing of your WOTC application, reduced paperwork and mailing, applications may be submitted online through the Michigan Web Account Manager (MiWAM) at michigan.gov/uia. For Step by step instructions on how to apply for WOTC using MiWAM, download the MiWAM Toolkit for WOTC at michigan.gov/uia.

WOTC RESOURCES AND FORMS

Want More Information On The Tax Credit?

Call the WOTC Unit toll-free at 1-800-482-2959
or 313-456-2105 if out of state; or e-mail us at WOTCUnit@michigan.gov.

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