Small Business Taxes & Management

Checklist


Work Opportunity Tax Credit

 

Small Business Taxes & ManagementTM--Copyright 2016, A/N Group, Inc.

 

 

Introduction

The Work Opportunity Tax Credit (WOTC) provides a credit of 20%, 40%, or 50% for wages paid to employees in certain targeted groups. Generally, only the first $6,000 of an employee's wages qualify for the credit, but different groups have different caps. If the credit rate is 40% and the wage cap is $6,000, the credit would be $2,400 for that employee. The wage deduction must be reduced by the amount of the credit. For S corporations, partnerships, LLCs, etc. the credit is passed through to the shareholder, partner, etc. As always, the rules are more complex than indicated below. Get Form 5884 and the accompanying instructions.

 

Targeted Groups

___ Long-term family assistance recipient
___ Qualified recipient of Temporary Assistance for Need Families (TANF)
___ Qualified veteran
___ Qualified ex-felon
___ Designated community resident (18 to 40 years of age and living in an empowerment zone or rural renewal county)
___ Vocational rehabilitation referral (mentally or physically handicapped)
___ Summer youth employee ($3,000 wage cap; live in an empowerment zone)
___ Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipient
___ SSI (Supplemental Security Income) recipient
___ Qualified long-term unemployment recipient (unemployed at least 27 weeks)

 

Credit Rates, Wage Limits, et al.

___ Employee must work at least 120 hours to qualify for any credit
___ Credit rate 20% if first-year hours at least 120 but fewer than 400 hours
___ Credit rate 40% if first-year hours 400 or more
___ Credit rate 50% for qualified 2nd year wages for long-term family assistance certified
___ Wage cap for credit generally $6,000 ($3,000 for summer youth; $10,000 long-term family assistance recipient)
___ Qualified veteran either receiving SNAP assistance or unemployed for at least 4 weeks but less than 6 months wage cap of $6,000)
___ Qualified vet; service-connected disability; hired within 1 year after discharge; wage cap $12,000
___ Qualified vet; unemployed at least 6 months; wage cap $14,000
___ Qualified vet; service-connected disability; unemployed at least 6 months; wage cap $24,000
___ Employee cannot have worked for you previously
___ Employee cannot be your dependent
___ Employee cannot be related to you (Sec. 51(i)(1))
___ More than 50% of wages were for working in your trade or business
___ Wages paid while summer youth employee lived outside empowerment zone don't qualify
___ Wages paid while employer received payment from a federally funded on-the-job training program don't qualify
___ Wages for summer youth employee limited to amounts paid between May 1 and September 15
___ Must receive certification from state employment security agency by day individual starts work or:
___ Complete Form 8850 and submit to state employment security agency by 28th calendare day after individual begins work.
___ Members of controlled group of corporations and group of businesses under common control treated as single employer.

 


Copyright 2016 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536


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--Last Update 03/31/16