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Work Opportunity Tax Credit
What is WOTC?
All or part of the tax credit can be claimed in the year prior to being approved for the credit or spread out over the next 20 years.
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.
Employers must submit the proper documentation to prove that the new hire is covered by one of the target groups. Failure to submit the necessary information will delay an application.
WOTC Target Groups
Applying for WOTC
An employer must submit to the Michigan Unemployment Insurance Agency IRS Form 8550, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit” and ETA Form 9061, “Individual Characteristics Form” for each newly hired employee who may qualify as a target group member. These forms are included as part of the online WOTC application.
Submit your WOTC application and supporting forms online through your Michigan Web Account Manager (MiWAM) account so your approval determinations are expedited. This ensures you receive your federal tax deduction much faster.
Forms may also be submitted by mail. Keep in mind there are considerable delays when mailing the paperwork to UIA offices.
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.
ETA Form 9061, "Individual Characteristics Form": Complete this form after deciding to hire the job seeker.
The IRS and ETA forms as well as the requirements for specific target group documentation can be found at the UIA website or the U.S. Department of Labor website.
Keep in Mind
- List the employer's name, address and Federal Employer Identification Number (FEIN) on any correspondence.
- Employers using employer representatives to process their tax requests, may not have their certifications mailed to the employer representative until either a notarized original or notarized copy of the Power of Attorney is on file with UIA's WOTC Unit.
- Upon receipt of the certification notice, the employer is responsible for employing the worker the required number of hours. IRS Form 5884, Work Opportunity Credit, is filed with your federal tax returns. It is available through the IRS website or by calling the IRS toll-free at 1-800-829-1040.
Employee Retention Credit: Can be used in conjunction with WOTC for an added tax credit. How the refundable tax credit works:
- Can be applied against certain employment taxes equal to 50 percent of the qualified wages paid by an eligible employer after March 12, 2020, and before January 1, 2021.
- Can also be applied against 70 percent of qualified wages paid by an eligible employer after December 31, 2020, and before January 1, 2022.
- Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make.
- The same wages cannot be used to calculate the WOTC and the ERC.
- For more information, go to IRS.gov.
Fidelity Bonding: Covers job seekers who are considered high-risk due to factors in their personal backgrounds and who have been rejected by a commercial bonding company. It protects employers from any loss of money or property incurred as a result of dishonesty by high-risk workers.
- Created to assist high-risk, but qualified, job seekers who have bona fide offers of employment.
- Employers can bond job seekers who are facing barriers to employment for the first six months on the job.
- Typically, some employers may view ex-offenders, former substance abusers, and other individuals who have questionable backgrounds as high-risk and potentially untrustworthy workers.
- For more information, go to MiTalent.org/Bonding.