Contact: Daryl Milliner: 412-867-9400—firstname.lastname@example.org—-www.paradigmlp.com
The Work Opportunity Tax Credit (WOTC)
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces the federal tax liability of any for-profit employers. Employers can hire from eleven different targeted groups:
- Qualified Temporary Assistance to needy Families Recipients (TANF)
- Qualified Veterans/Disabled Veterans
- Unemployed Veterans
- Qualified Ex-felons
- Qualified Designated Community Residents (DCR) residing in an Empowerment Zone (EZ), Renewal Community (RC), or in a Rural Renewal County (RRC)
- Qualified Vocational Rehabilitation Agency Referrals
- Disconnected Youth
- Qualified Summer Youth (SY)
- Qualified Food Stamp Recipients (FS)
- Qualified Supplemental Security Income Recipients (SSI)
- Qualified Long-Term Family Assistance Recipients (LTFAR)
Maximum Credit Available
- $1,200 for each new Summer Youth* hired
- $2,400 for each new Adult hired
- $4,800 for each new Disabled Veteran hired
- $9,000 for each new Long Term Family Assistance Recipient hired over a two year period
*The credit is based on 40% of up to $6,000 in qualified wages during the first year of employment. Summer Youth qualify for 40% of the first $3,000 in wages during the required working period of May 1 through September 15.
Minimum Employment or Retention Period
All new employees must work a minimum of 120 hours and individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. Recent program changes took place in 2007 that impacted multiple target groups. One such change was the consolidation of the Welfare-To-Work Tax credit program into the WOTC program to become known as Long-Term Family Assistance and a second change was the creation of the new Disabled Veteran target group that went into effect May 25, 2007. On February 17th as part of the American Recovery and Reinvestment Act (ARRA) of 2009 two new categories were created Unemployed Veterans and Disconnected Youth.
The WOTC Program has been reauthorized until August 31, 2011
Long-Term Family Assistance Recipients who began work after December 31, 2006 and before September 1, 2011, can earn employers up to $9,000 if they are a member of a family:
- That received TANF for at least 18 consecutive months before the hire date
- Whose TANF eligibility under federal or state law expired after August 5, 1997 (for applicants hired within two years after their eligibility expired)
- That received TANF for at least 18 months, beginning after August 5, 1997, and is hired not more than two years after that 18-month period
Disabled Veterans who began work after May 25, 2007 and before September 1, 2011, can earn employers up to $4,800 if they:
- Are entitled to compensation for a service-connected disability of at least 10%
- Have a hiring date which is not more than 1 year after having been discharged or released from active duty in the Armed Forces of the United States
- Have aggregate periods of unemployment during the 1 year period ending on the hiring date which equal or exceed 6 months
For more information, use our contact us form or call Karim Solanji at 281-558-7100.
Are there any employer incentives for hiring employees who work in an Enterprise Zone (EZ) or Renewal Community (RC)?
Yes. The tax code allows employers a credit against Federal taxes for hiring and retaining employees who live and work in an EZ or RC. The EZ Wage Credit has been available since 1994 for Round I EZs and since 1998 for the District of Columbia.
Can a business use this credit for current employees?
Yes. The EZ Wage Credit and RC Wage Credit are incentives to hire and retain individuals who live in an EZ or RC, so it is available each year throughout the EZ Wage Credit and RC Wage Credit periods.
What if the employee works part-time?
The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number of hours worked.
What is the credit amount?
The EZ Wage Credit amount is up to $3,000, and for the RC Wage Credit is $1,500.
Is there a limit on the number of employees for which a business can take the credit?
An employer can take the credit for as many employees as qualify.
What if the employee works in an EZ or RC for only part of the year?
An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in an EZ or RC. No other time periods can be used to prorate the credit.
For example, if an employee works in several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in an EZ or RC.
What if the Federal tax liability of the business is less than the total credit amount?
The EZ Wage Credit and RC Wage Credit generally are subject to the same rules as other business tax credits. As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year. However, the credit cannot be carried back prior to the EZ or RC designation.
Can a pass-through entity, such as a partnership, Limited Liability or S-corporation, use the credit?
The EZ Wage Credit and RC Wage Credit are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.
Which categories of employees would not qualify for the EZ and RC Wage Credits?
The EZ and RC Wage Credits cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the sale of alcoholic beverages for consumption off premises. The EZ and RC Wage Credits are not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as dependents under the tax code. Similar exclusions apply to 5 percent owners related to the employer and family members of majority shareholders or partners of the employer.
For more information, use our contact us form or call Karim Solanji at 281-558-7100.
Often referred to as a job stimulus bill, the HIRE Act provides a payroll tax exemption to employers who hire unemployed workers after February 3, 2010, through the end of 2010. The tax break applies to wages paid with respect to employment on the day after the HIRE Act becomes law through the end of 2010. Also in the HIRE Act, a new hire retention credit of up to $1,000 per individual is available for employers who retain these previously unemployed workers for at least 52 weeks in a row.
Payroll Tax Exemption(Section 101)
Section 101 of the HIRE Act provides details on the payroll tax exemption. Under these provisions, most employers do not have to pay their portion of Social Security taxes (6.2 percent) for newly hired, unemployed individuals, who are called “qualified individuals.” With one exception, this payroll tax exemption is not available to U.S. and state governments, or any of their political subdivisions (e.g., city or county governments). The exception is that the tax break is available to public institutions of higher education (as defined in §101(b) of the Higher Education Act of 1965).
The Requirements for a Qualified Individual under the Hire Act are as follows:
- The individual began employment with the qualified employer after February 3, 2010 and before January 1, 2011.
- The individual was employed for no more than 40 hours in the last 60 day period ending on the date that the individual was hired.
- The new hire needs to fill out an affidavit indicating that they were unemployed and sign it under penalties of perjury.
- The individual was not employed to replace another employee unless the other employee resigned voluntarily or was terminated for cause.
- The new employee cannot be a relative of any owner who has 50 or more percent ownership.
The IRS recently clarified several important aspects of the payroll tax exemption. The law applies to “wages paid by a qualified employer with respect to employmentduring the period beginning on the day after the date of enactment and ending on December 31, 2010.” The IRS interprets this to mean any wages paid on or after March 19, 2010, regardless of when the wages were earned.
Employers of all sizes qualify for the payroll tax break. It applies to part-time and seasonal employees, regardless of exempt/non-exempt status or hourly/salaried payment method. Rehires would be included as well.
New Hire Retention Credit (Section 102)
Under Section 102 of the HIRE Act, if the qualified individual is retained by the employer for 52 consecutive weeks, the employer is entitled to a new hire retention credit of up to $1,000 per individual. The credit is equal to the lesser of 6.2 percent of wages or $1,000. In other words, if wages are at least $16,129.03, then the new hire retention credit is $1,000. Otherwise, it is 6.2 percent of wages. During the last 26 weeks of that period, the qualified individual must have wages that are at least 80 percent of the wages for the first 26 weeks.
What is our Employment Network Service?
What makes your new hire eligible?
How does the new hire become eligible?
As the employer is there a retention commitment for the new employee?
How much do I have to compensate the employee to receive a cash benefit?
What is the amount of the benefit can I expect from Paradigm Partners?
- $425 after first month
- $425 after first three months
- $425 after first six months
- $425 after first nine months
- $125 monthly from month 10 to 60
How does this affect the Work Opportunity Tax Credit?
Is there a cap to the amount of payments under this program?
How many of my new hires will potentially qualify for this program?
What makes Paradigm Partners so effective?
- Customizable screening options which includes
- Live operator phone screening
- Conventional paper screening
- We help manage internal compliance
- Match screened new employees to actual new hires.
- Identify non-compliant areas, and work with them to make them compliant
- Educate hiring managers about the credit
- Make sure that supervisors are aware of employees’ eligibility so the company maximizes the credit.
- Identify how employer can target potentially certifiable job candidate pools.
Employees that are certified members of an approved Native American tribe or the spouse of a certified member are qualifying employees. The employee must live on or “near” the reservation and perform the majority of the work on the reservation and has worked for a minimum of one year.
The company must be non-Indian or non-Tribal owned business and located on the reservation.
Tax Credit Available
The maximum annual credit available is $4,000 per eligible employee.