Your Top 7 Questions on the Work Opportunity Tax Credit (WOTC) Answered
Posted Tuesday, February 23rd, 2016 by
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Recent new legislation on the Work Opportunity Tax Credit (WOTC) and other federal incentives have made the program easier to participate in, and more valuable as well. While all US based businesses, including not-for profit companies can take advantage of the Tax Credit, many have chosen not to participate due to the burden associated or lack of knowledge about the program.
We recently conducted a webinar on the WOTC program and how recent legislation has made it more valuable to employers who participate. The webinar highlighted how companies can earn $100-$200 per hire in tax credits, by having prospective employees complete the government form 8850. Historically a paper-based process that rewarded companies for hiring individuals off of government programs or from disadvantaged categories – recent legislation and technology have introduced exciting improvements.
In partnership with Tax Credit Co., Elizabeth May, Sri Kaza and I discussed the benefits and challenges of the program with participants, and demonstrated how an automated solution takes away most of the burden through automation. Participants were provided with an opportunity to ask questions about WOTC screening and how best to take advantage of this program. Here is a recap of 7 commonly asked questions – from HR recruiters and Tax Leaders:
Doesn’t the WOTC program require paper forms, signatures and lots of follow up with employees?
Yes – or at least, it used to be. Prior to 2012, the 8850 (a key government form for the program) was required with a hand signature for each new hire. Along with the paper 8850, another form 9061 for additional documentation was required for most categories of qualification. However, legislation has since changed allowing for electronic signatures. State agencies have also invested in databases that allow for automation on documentation.
Today, with the right partner, participating in WOTC can be a fully electronic process that involves only a few simple questions asked to job applicants.
What are the deadlines associated with claiming a WOTC hire, and capturing the credit?
There are two important deadlines to consider when participating in WOTC, and these deadlines are associated with different steps in a company’s hiring process. The first is to have a process that allows job applicants/employees the opportunity to complete a questionnaire to determine their eligibility. This must occur on or before the day of offer. The second important deadline is the 28 day window that employers have to complete and submit the form 8850 to the appropriate government agency.
What this means for most companies is that they must find a place in their recruiting process, either during the job application, or the first day of onboarding to ask these questions. They’ll also need to dedicate resources, or get help completing and processing the 8850 forms.
What is the benefit to the employee?
The tax credit incentive only goes to the employer, and isn’t shared with the employee. The purpose of the program is really to help underrepresented individuals gain employment. While it is not a requirement to make hiring decisions based on WOTC qualification status, the EEOC has issued guidance declaring it is an acceptable practice.
What types of hires can qualify for the credit, and how much?
Any new first time hire could qualify (rehires do not), and the three most common categories that new hires qualify in are:
- Long Term Unemployed (just added to program in 2016)
- Food Stamp or Temporary Assistance Recipient
- Veteran (Disabled and/or Unemployed)
For the major categories the credit is calculated as percent of the employee’s wages earned after having worked a minimum of 120 hours. We find the average credit per qualified employee is $1200-1500. The number of employees that qualify depend on job type, location and wages. With the current criteria, most companies will see anywhere from 10-30% of their new hires qualify.
Can staffing agencies, recruiting firms or non-profits benefit?
While not every company can take advantage of WOTC, there are several ways to make it work. For example, despite being tax exempt – non-profits can actually participate and use the federal tax credits created by WOTC. This is done by applying their WOTC credit against payroll taxes.
With staffing and recruiting firms, and outsourced employment models eligibility varies. Companies must be the “common-law” employer to benefit from the credit. A conversation with a Tax Credit Co. advisor can help you make that determination.
How does the online solution improve on our current paper-based screening process?
The WOTC screening feature can be added seamlessly to the background screening process within a SterlingBackcheck workflow. Enabling the questionnaire in a standard process will ensure all candidates have a chance to complete the form, and can answer the minimum number of questions to compete the required documentation. SterlingBackcheck clients using this feature are seeing a high degree of compliance with the program and no impact on applicant experience.
The integrated solution also allows for faster submission to state agencies and quicker turnaround for certificates and tax credits.
What does it cost us to participate?
SterlingBackcheck offers this feature, which can be enabled in days, at no charge. Our partner, Tax Credit Co., will prepare, submit and manage your 8850 applications and calculate your credits – charging only a small percentage of the tax credit at the time it is delivered.
By the way, did you know that we offer a free WOTC program to all clients?
This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.