IRS Tax Tip on Work Opportunity Tax Credit For This Year

All current workers in the organization should be screened to find out if they are well suited to claim tax credits related to hiring new recruits. The Working Opportunity Tax Credit (WOTC) program is intended to stimulate the employment of individuals from a particular group who suffer from severe social neglect in the workplace. The urgency to re-validate the WOTC status for the newly employed has been repeatedly affirmed by the International Revenue Service.

Working Opportunity Tax Credit (WOTC) program
Working Opportunity Tax Credit (WOTC) program

What peoples are eligible for the Working Opportunity Tax Credit?

People who receive long-term family assistance

Long-term unemployment recipients

Supplemental Nutrition Assistance Program (SNAP) beneficiaries

Recipients of Supplemental Security Income (SSI).

Temporary Assistance for Needy Families (TANF) recipients

Formerly incarcerated individuals

Qualified unemployed veterans, including disabled veterans

Designated community residents living in Empowerment Zones or Rural Renewal Counties

People referred to vocational rehabilitation programs

Summer youth employees living in Empowerment Zones

Certification Requirement

To claim the WOTC, companies must establish the worker-qualification status of a particular job applicant. This usually involves emailing the IRS Form 8850 known as the Pre- Screening Notice and Certification Request for the Work Opportunity Credit to the local quick-center in which the employee is registered and usually takes place within one month since the employee reported to work. Employers should not submit this form to the IRS directly.

Figuring and Claiming the Credit

Employers can calculate the credit on Form 5884, Work Opportunity Credit, after they have obtained approval from the labor authority in their state and presented Form 8850 to the respective agency and include the credit on Form 3800, General Business Credit. The amount of the credit is generally determined by the wages paid to qualified employees in their initial year of employment.

Special Rule for Tax-Exempt Organizations

Tax-exempt organizations can only utilize the tax credit for hiring qualified veterans who started before 2026 merely because of a provision. Moreover, these organizations receive the money due from the credit as payment of FICA tax, which is claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations That Employ Qualified Veterans.

Credit Limitations

The credit is limited to the liability of the business’s tax for businesses that pay taxes. For tax-exempt businesses that are qualified, the amount of employer Social Security Tax due on wages paid to qualifying employees will cap the credit.

Employers who wish to avail themselves of this tax benefit and hope to benefit from the credit are advised to scrutinize whether they meet the conditions required for the Work Opportunity Tax Credit and obtain the credit accordingly.

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