WOTC and Empowerment Zones Tax Credits

If you hired anyone recently, you may be eligible for extra (tax) credit up to $9,600 for each hire.

Tax credits and benefits are on the table for employers, if you don’t mind working your way through a series of government acronyms, rules and a quickly approaching deadline this June.

Here’s the background: the Protecting America from Tax Hikes (PATH) Act of 2015 extended employers’ ability to take advantage of the Work Opportunity Tax Credit (WOTC) through 2019 and the Empowerment Zone Credit through 2016.

The WOTC tax credits can be $2,400 to $9,600 per-employee for hires within targeted groups. Here are the targeted groups:

  • Designated community resident living in Empowerment Zones or designated rural residents
  • Ex-felon
  • SNAP (Food Stamp recipient)
  • Summer youth employees living in Empowerment Zones
  • Supplemental Security Income recipient
  • Temporary Assistance for Needy Families (TANF) recipients, both short and long-term
  • Veteran (in certain circumstances)
  • Vocational rehabilitation referrals

For 2016, Congress added a new targeted group: qualified long-term unemployment recipients.

New hires are eligible for WOTC credits provided they are in the targeted groups and start work before Dec. 31, 2019. Specifically, the credits amount to 40 percent of the first $6,000 of the employee’s qualified first-year wages.  For qualified veterans the wage base is divided into 3 classifications – $12,000, $14,000, & $24,000.  Therefore, the credit for certain veterans can be up to $4,800, $5,600, or $9,600.  See IRS Form 5884 instructions for a definition of each classification.

Because the PATH Act contains a retroactive component, employers STILL HAVE an extended time to seek certification, but the deadline is coming FAST.

To qualify for the credit, an employer must submit Form 8850 to the appropriate department of labor by June 29, 2016.  Eligible employees must have started work between January 1, 2015 and May 31, 2016.  Since Unemployment recipients were added this year they are only eligible from January 1, 2016 to May 31, 2016.

See Notice 2016-22 for details.  A timely request for certification does not eliminate the need for the employer to receive a certification before claiming the credit.

EMPOWERMENT ZONE

Empowerment zones were created to give incentives in the hope of generating more thriving economies in economically distressed areas.  Empowerment zone tax credits continue through 2016. Knoxville, TN is one of only 40 communities in the US that has an empowerment zone. Click here to see if you live in or near an empowerment zone.

What’s in it for employers? Potentially a $3,000 tax credit, or 20 percent of wages up to a maximum of $15,000.  Qualified employees must live within an empowerment zone and perform substantially all their duties within the zone.  A minimum 90 days of employment is required.

The credit may be used together with the WOTC; but employers can’t double-dip the wages and claim the same wages for both the WOTC and the empowerment zone.  Therefore, a new hire from an empowerment zone must have wages of $21,000 to claim the full amount of both credits, which could be up to $5,400.

Details on the empowerment zone tax credits are available here.

If you’re an employer, and you think you’re eligible for extra (tax) credit, check into these right away.

If you would like assistance applying for the credit contact Jason Hamilton at [email protected].

 

Tagged Empowerment Zones, Featured, Tax, Tax credits, Work Opportunity Tax Credit, WOTC