Work Opportunity Tax Credit and Welfare-To-Work Tax Credit
This information is provided by the North Carolina Employment
Security Commission and describes the steps to utilizing this
valuable tax credit.
What Is the Work Opportunity Tax
Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax
credit program available to employers who hire new employees from
eight "targeted" groups, which have historically had difficulty in
finding employment. The credit is used to reduce the federal tax
liability of private-for-profit employers.
How Does an Employer Use WOTC?
When an employer believes that a prospective employee
meets the qualifications for WOTC, the employer may make a job offer
to that individual. On or prior to the date the job offer is made,
the employer and employee must
complete and sign a "Pre-Screening Notice and
Certification Request for the Work Opportunity and Welfare-to-Work
Credits," (IRS-8850) and submit the notice to the Employment
Security Commission of North Carolina. This information must be
postmarked no later than the 21st day
after the individual begins work for the employer for the tax credit
to be utilized.
Under the provisions of the Taxpayer Relief Act of 1997,
employers can claim a maximum federal income tax credit of $2,400.00
per eligible worker. The credit is based on 40% of up to $6,000.00
in qualified wages paid during the first year of employment. The
employee must work a minimum of 400 hours (120 hours for Summer
Youth) to be eligible for the tax credit. If the employee works a
minimum of 120 hours, but not more than 399 hours, the tax credit is
based on 25% of up to $6,000.00 in qualified wages, or a maximum of
$1,500.00. The exact amount of net savings depends upon each
employer’s tax bracket plus the amount of qualified wages paid.
What Happens Next?
An Individual Characteristic Form (ETA-9061) that
designates which target group the employer believes the new employee
falls under must be completed. It is recommended that both the
IRS-8850 and the ETA-9061 be submitted simultaneously. This
expedites the certification process. Once both forms have been
submitted, along with any necessary documentation, an eligibility
determiniation will be made. If the employee is determined to be
eligible, an Employer Certification will be issued. If the employee
is determined to be ineligible, an Employer Letter of Denial will be
issued.
Target Groups
A.
Qualified IV-A Recipients
A
person receiving assistance under a IV-A program, TANF (Temporary
Aid for Needy Families) formerly known as AFDC (Aid to Families with
Dependent Children), for any 9-months during the 18-month period
ending on the hiring date.
B.
Qualified Veterans
A
person who has served active duty in the Armed Forces of the United
States for a period of more than 180 days or was discharged from
active duty in the Armed Forces of the United States for a
service-connected disability and is a member of a family receiving
Food Stamps for at least a 3-month consecutive period during the
last 15 months ending on the hiring date.
C.
Qualified Ex-Felons
Any
person who has been convicted of a felony under any statue of the
United States and who has a hiring date which is not more than one
year after the later of the date on which he/she was so convicted or
the date released from prison, and is a member of an economically
disadvantaged family.
D.
High Risk Youth
Any
person who is at least age 18 but not yet age 25 on the hiring date
and has his/her principal place of abode within an Empowerment Zone
or Enterprise Community.
E.
Vocational Rehabilitation Referral
Any
person having a physical or mental disability which, for that
individual, constitutes or results in a substantial handicap to
employment, and was referred to the employer upon, or at any time
after, completing or while receiving rehabilitative services
pursuant to an individualized written rehabilitation plan (IWRP)
under a State plan for vocational rehabilitation services approved
under the Rehabilitation Act of 1973 or a rehabilitation program for
veterans, carried out under Chapter 31 of Title 38, U.S. Code.
F.
Qualified Summer Youth
Any
person who performs services for the employer between May 1 and
September 15, and has attained age 16 but not 18 on the hiring day,
(or by May 1 of the calendar year involved), and has not been
employed by the same employer prior to the 90-day (summer) period,
and has his/her principal place of abode within an Empowerment Zone
or Enterprise Community.
G.
Qualified Food Stamp Recipient
Any
person between the ages of 18 and 24 who is a member of a family
receiving assistance under a food stamp program for the 6-month
consecutive period ending on the hiring date, or receiving such
assistance for at least 3 consecutive months of the 5-month
consecutive period ending on the hiring date,
in the case of a
family member who is an able-bodied adult without dependents and
ceases to be eligible for such assistance.
H.
Qualified SSI Recipients
Any
person receiving Supplemental Security Income (SSI) assistance for
any month during the 60 day period ending on the hiring date.
What is the
Welfare-to-Work Tax Credit?
The Welfare-to-Work Tax Credit is a two-year, federal
income tax credit issued to employers who hire individuals deemed as
long-term welfare recipients. Under the provisions of the Taxpayer
Relief Act of 1997, and Sections 51 and 51A of the IRS Code,
employers can only claim the Welfare-to-Work Credit for the
Long-Term Family Assistance Recipient if he/she was employed by the
employer after December 31, 1997 and is employed for at least 180
days, or completed at least 400 hours of work. For the first year,
the credit is based upon 35% of up to the first $10,000.00 in
qualified wages, for a maximum first year credit of $3,500.00. For
the second year, the credit is based upon 50% of up to the first
$10,000.00 in qualified wages, for a maximum second year credit of
$5,000.00.
Who are Long-Term Welfare Recipients?
Long-Term Welfare Recipients meet the following criteria:
-
Members of a
family that received TANF for at least the 18 consecutive months
prior to the date of hire,
-
Members of a
family whose TANF eligibility expired under federal or state law
after August 5, 1997,
-
Members of a
family that received TANF for a total of at least 18 months,
beginning after August 5, 1997.
How Can Employers Participate in the
Welfare-to-Work Tax Credit?
Employers must apply for and receive certification for
the Welfare-to-Work Tax Credit in the same manner as the WOTC Tax
Credit, through the Employment Security Commission. Applicants must
complete the Pre-Screening Notice and Certification Request for the
Work Opportunity and Welfare-to-Work Credits (IRS-8850) on or before
the date of the job offer, and the form must be mailed to the
Employment Security Commission of North Carolina postmarked no later
than the 21st day after the applicant starts work.
What is a
DUAL Certification?
Whenever an employee qualifies as both a member of a WOTC
target group and as a Long-Term Family Assistance Recipient for the
WtW Tax Credit, a certificate indicating the employee’s
DUAL status as a member of a WOTC
target group and as a Long-Term Family Assistance Recipient will be
issued. It should be noted that employers
cannot claim both the WOTC and the WtW tax credits for the
same employee in the same taxable year.
For information, or to request the necessary forms, contact the
WOTC/WtW Coordinator at the following address:
Employment Security Commission of North
Carolina,
Attn: Applicant Services Unit; WOTC/WtW
P.O. Box 27625
Raleigh, North Carolina 27611-7625
(phone) 919-733-4896
(fax) 919-733-3010
(email)
wotc@ncmail.net
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Health Insurance – In addition to the WOTC, small
businesses that provide health insurance to employees are eligible
for a tax credit that both lowers the employers’ costs of providing
insurance and increases the number of insured people. Business
owners who employ 25 or fewer people and pay at least half the
premium costs for their workers are eligible for a tax credit for up
to $250 a year. |
