Work Opportunity Tax Credit Extended

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The VOW to Hire Heroes Act of 2011 had previously made changes to the Work Opportunity Tax Credit (WOTC), including adding new categories to the qualified veterans targeted group and expanding the WOTC to make a reduced credit available to tax-exempt organizations hiring qualified veterans. The VOW Act had also extended the WOTC for qualified veterans hired before January 1, 2013.  The American Taxpayer Relief Act of 2012 (ATRA) then extended the Work Opportunity Tax Credit (WOTC) for hiring certain workers including qualified veterans through December 31, 2013.

Pre-screening and Certification Requirements

All employers must obtain certification that an individual is a member of a targeted group, before the employer may claim the WOTC. The process for certifying the veterans for this credit is the same for all employers. To obtain certification, employers must file Form 8850.

Normally, an eligible employer must file Form 8850 with their respective state workforce agency within 28 days after the eligible worker begins work. However, the IRS has provided special transition rules for the recent law changes.

Under the special transition rules, an employer who hires a member of a targeted group, other than a qualified veteran, after December 31, 2011, and on or before March 31, 2013, will be considered to have timely filed Form 8850 if it submits the completed form to the respective state workforce agency by April 29, 2013.  An employer who hires a veteran after December 31, 2012, and on or before March 31, 2013, will be considered to have timely filed Form 8850 if it submits the completed form to the respective state workforce agency by April 29, 2013. The 28-day rule will only be applicable after that date.

Claiming the Credit - Taxable Employers

For taxable employers, the WOTC may be claimed for hiring targeted group members, including qualified veterans, who begin work before January 1, 2014.  After the required certification is secured, taxable employers claim the tax credit as a general business credit against their income tax.

Claiming the Credit - Tax-exempt Employers

Qualified tax-exempt organizations may claim the credit for qualified veterans who begin work on or after November 22, 2011, and before January 1, 2014. Tax-exempt employers may not claim the WOTC for other targeted group members.  After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C.  The Form 5884-C is filed after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers not reduce their required deposits in anticipation of any credit as the forms are processed separately.

If you are interested in taking advantage of the WOTC, you should talk to your tax professional.  If you have any questions about how to take advantage of the WOTC as amended by the VOW Act or ATRA, please contact me at 937-223-1130 or Jsenney@pselaw.com.

AND ONE MORE THING.   The mandate for large employers to provide health insurance to their full time employees, or face penalties, has been deferred to 2015.  Employees however are still required to obtain and carrying health insurance, or face penalties, starting in 2014.  The delay in implementing the employer mandate will likely cause more people to enroll in the subsidized insurance exchanges.  Each year, going forward as fewer and fewer employers offer health coverage and/or restructure their work force (part time versus full time workers), more and more individuals will likely move to the exchanges.

Small businesses with fewer than 50 employees are not subject to the mandate.  So some employers are looking at restructuring their work force as a way around the new law.  For this purpose, the law defines full time employees as those that work on average 30 or more hours per week.  To avoid the mandate, some businesses have been hiring fewer full time workers, hiring more part-time workers, and/or cutting employees' hours to less than 30 per week.  If you would like to know more about the employer mandate, contact one of our employment law attorneys at 937-223-1130 or Jsenney@pselaw.com.