The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals from certain target groups who have consistently faced significant barriers to employment. Claiming the WOTC involves several steps. Here’s a detailed guide on how construction companies can claim the Work Opportunity Tax Credit:
- Pre-screening and Certification Process:
- IRS Form 8850: Before or on the day of offering a job to an individual, the employer and the job applicant must complete IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.”
- ETA Form 9061 or 9062: Submit either ETA Form 9061 (Individual Characteristics Form) if the new hire has not been given a conditional certification or ETA Form 9062 (Conditional Certification Form) if the job applicant has been conditionally certified as belonging to a WOTC target group by a state workforce agency (SWA) or participating agency.
- Submitting Forms to State Workforce Agency (SWA):
- Submit the completed IRS Form 8850 and the ETA Form 9061 or 9062 to the SWA within 28 days of the employee’s start date.
- Receive Certification:
- The SWA will review the submitted forms and determine if the new hire qualifies as a member of a target group. If approved, the SWA will issue a certification to the employer.
- Calculating the Credit:
- The amount of the tax credit depends on the employee’s wages, the number of hours worked, and the specific target group to which the employee belongs. Generally, the credit is 25% of qualified first-year wages for employees who work at least 120 hours but fewer than 400 hours, and 40% of qualified first-year wages for those who work 400 hours or more.
- Claiming the Credit:
- IRS Form 5884: Employers use IRS Form 5884, “Work Opportunity Credit,” to claim the WOTC. The form should be included when filing the company’s federal income tax return.
- General Business Credit: The WOTC is part of the general business credit. Unused WOTC can be carried back one year and carried forward for up to 20 years.
- Recordkeeping:
- Maintain records that verify the employee is a member of a targeted group, the number of hours worked, and the wages paid to the employee.
- Filing the Tax Return:
- When filing your business tax return, attach IRS Form 5884 and any other required documentation to claim the credit. Be sure to follow any additional instructions provided by the IRS specific to your business type.
By following these steps, construction companies can effectively claim the WOTC and benefit from the tax credits available for hiring individuals from target groups.
Contact us with your questions about how construction companies can claim the Work Opportunity Tax Credit or for assistance in applying for and managing the WOTC.
