Many businesses hired in 2017, and more are planning to hire in 2018. If you’re among them and your hires include members of a “target group,” you may be eligible for the Work Opportunity tax credit (WOTC). If you made qualifying hires in 2017 and obtained proper certification, you can claim the WOTC on your 2017 tax return.
Whether or not you’re eligible for 2017, keep the work opportunity tax credit program in mind in your 2018 hiring plans. Despite its proposed elimination under the House’s version of the Tax Cuts and Jobs Act, the credit survived the final version that was signed into law in December, so it’s also available for 2018.
Target groups qualifying for the work opportunity tax credit program include:
Before you can claim the WOTC, you must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a target group member. You must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for you. Unfortunately, this means that, if you hired someone from a target group in 2017 but didn’t obtain the certification, you can’t claim the work opportunity tax credit program on your 2017 return.
Qualifying employers can claim the WOTC as a general business credit against their income tax. The amount of the credit depends on the:
The maximum credit that each member can earn of a target group is generally $2,400 per employee. The credit can be as high as $9,600 for certain veterans.
Employers aren’t subject to a limit on the number of eligible individuals they can hire. In other words, if you hired 10 individuals from target groups that qualify for the $2,400 credit, your total credit would be $24,000.
Remember, credits reduce your tax bill dollar-for-dollar; they don’t just reduce the amount of income subject to tax like deductions do. So that’s $24,000 of actual tax savings.
The Work Opportunity tax credit program can provide substantial tax savings when you hire qualified new employees, offsetting some of the cost. Contact us for more information.