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New rules make it easier to claim the Work Opportunity Tax Credit

03/27/2016  |  By: Brian McCuller, JD, CPA, Shareholder, Practice Leader Tax


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If you hired new employees in 2015 and earlier this year, it could be worth your while to pay attention to new guidance from the IRS that makes it easier to claim certain tax credits retroactively.

The Work Opportunity Tax Credit (WOTC) allows businesses to reduce their federal tax burden if they hire employees from certain target groups — including unemployed veterans, food stamp recipients, people living in certain designated economic zones and ex-felons.

Employers typically must apply for the credit within 28 days of hiring the employee, but since the credit was not renewed by Congress until late last year, the IRS has created a grace period for hires made in 2015 and through the first half of 2016. Businesses now have until June 29, 2016, to apply for the credit for employees hired between January 1, 2015, and May 31, 2016.

Congress also expanded the WOTC. Under the Protecting Americans from Tax Hikes Act of 2015 (PATH), a new category of qualified hires was added — the long-term unemployed — and the entire program was extended through 2019.

Long term unemployed employees only qualify for the WOTC if they are hired after January 1, 2016. The deadline for filing Form 8850 with the state employment agency has been extended to June 29, 2016, for qualified long term unemployment recipients hired on or after January 1, 2016, through May 31, 2016.

Both changes are designed to continue to incentivize workplace diversity and facilitate access to good jobs for American workers, particularly those who have faced significant barriers to employment.

With the addition of the long-term unemployed and the extension of the program, businesses who have not taken advantage of it in the past should take another look. It is a great opportunity and maintaining a program into the future could mean significant savings.