Times are changing, especially in the case of one of America’s staple tax credits, known as the Work Opportunity Tax Credit (WOTC). Since its inception in 1983 under a variety of different titles and officially pegged as WOTC in 1996, the federal tax credit has been modified and extended numerous times, including going on hiatus. Its last break was from Jan. 2, 2012, to Jan. 2, 2013, but it has expired yet again as we start 2014.
Each year, employers claim more than $1 billion in tax credits under the WOTC program, so it is important that you are taking advantage of it, despite the impending hiatus.
What’s a WOTC?
The WOTC provides an incentive to claim a credit against an employer’s federal income tax liabilities. The program is designed to encourage employers to increase hirings among disadvantaged individuals who consistently have faced significant barriers to gainful employment. Incentives have the potential to reach $9,600 per eligible hire, with no limit on the number of qualifying individuals hired.
The WOTC Time Frame and Hiatus
In order to obtain tax subsidies through WOTC, employers must identify eligible employees on or before the day of their job offer. The Internal Revenue Service’s Form 8850 must be signed by the new employee and sent to the State Workforce Agency (SWA) for certification within a 28-day window from the date of hire.
Even with WOTC in hiatus, these steps must be taken. Otherwise, the credits will not be recoverable retroactively.
Experts speculate that the renewal of WOTC will be included in one of the tax-reform bills proposed by Congress, but this isn’t expected to occur until sometime down the road in mid-2014.
The SWA will continue working on certification requests for employees hired after Jan. 2, 2014, once the program is extended and the backlog is completed. All certifications requested will be held to the same standards, including the 28-day deadline currently in place. It is imperative that you have this documentation now in order to qualify for credits later.
The Paycom Solution
During the WOTC hiatus, it’s important to plan accordingly in order to execute an effective tax strategy, and Paycom is here to help. Our single application and true end-to-end workforce solution is the ideal technology for businesses looking to capture WOTC credits, while also mitigating compliance risks. Coupled with Paycom’s cloud-based talent acquisition and HR management platforms, employers easily can secure tax credits while also ensuring continuity and compliance with I-9, W-2 and other employment records.