Congress hands out tax credits these days the way most people hand out candy on Halloween. The Work Opportunity Tax Credit (WOTC) is a good illustration of the ever-expanding incentive systems built into the tax law. When originally enacted in 1976 as the Targeted Jobs Credit, it was an inducement to employers to hire those who were truly underemployed: Those receiving family assistance benefits, ex-felons and the like. But as with any 40-year government program, there has been expansion.
The December "extender legislation" renewed the WOTC through 2019 -- a welcome acknowledgement that this credit is basically a permanent feature in the tax code. More importantly, we have added yet another category of new hires that can produce a tax credit for an employer.
For tax years beginning in 2016 and after, hiring an individual who has been unemployed for 27 consecutive weeks or more qualifies the employer for a tax credit, assuming the individual also received at least some federal or state unemployment benefits during this period. Like many of the other jobs credit categories, the employer is entitled to a tax credit of up to $2,400 (40% of the first $6,000 of wages paid to the new hire). However, the credit can vary from $1,200 to $9,600, depending on the category of worker and wages paid in the first year or two.
THE CREDIT BASICS
The employer must be nimble. IRS Form 8850, Pre-Screening Notice, must be submitted to the state workforce agency within 28 days of the new hire commencing work. In addition, there is a DOL form, either ETA Form 9061 or 9062, that must accompany the Form 8850. The state agency then determines eligibility and informs the employer of the ability to claim the tax credit on IRS Form 5884.
JOBS CREDIT CATEGORIES
Most of the 10 or so jobs credit categories involve economically disadvantaged definitions (those from families receiving food stamp assistance, those from families receiving Temporary Assistance for Needy Families, etc.). Ag employers, however, should carefully review the IRS Form 8850 instructions whenever a new hire is engaged.
A credit is available for a military veteran hire with as little as four weeks of unemployment, as well as for several other categories of veterans. There's also eligibility for hiring an employee who has attained age 18, but not age 40 who resides in a "rural renewal county" (counties with flat or declining population during the 1990s). The rural renewal counties are listed in the Form 8850 instructions. Apparently location within those counties defines disadvantaged status in the eyes of Congress, even though most of us would characterize the quality of life in those locales as immeasurably greater than within the DC Beltway!
EDITOR'S NOTE: Andy Biebl is a CPA and tax principal with the firm of CliftonLarsonAllen LLP in Minneapolis with more than 40 years of experience in ag taxation, including 30 years as a trainer for the American Institute of CPAs and other technical seminars. He writes a monthly column for our sister magazine, The Progressive Farmer. To pose questions for future tax columns, e-mail AskAndy@dtn.com.
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