Tax credit can help employers hiring new workers
The IRS encourages employers to utilize the Work Opportunity Tax Credit (WOTC) to incentivize hiring workers facing significant employment barriers. The credit supports employers who hire individuals from specified categories, such as long-term unemployment recipients and veterans. Recent legislative changes have expanded and updated the credit, including new categories like long-term unemployment recipients who meet specific criteria. To claim the credit, employers must request certification through Form 8850 within 28 days of the worker’s employment start date and meet other outlined requirements. This credit is claimed on Form 5884 and contributes to the general business credit reported on Form 3800.
The credit, usually claimed on Form 5884, Work Opportunity Credit, is generally based on wages paid to eligible workers during the first two years of employment. To qualify for the credit, an employer must first request certification by filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
There are now 10 categories of WOTC-eligible workers. Besides long-term unemployment recipients, the other categories include certain veterans and recipients of various kinds of public assistance, among others.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans. Visit the WOTC page on IRS.gov for more information.