Aiming at Big Tax Credits for Target Workers

As businesses ramp back up, they need to hire in a tight labor market. Luckily, the Work Opportunity Tax Credit (WOTC) may help for select workers.

The WOTC has expired and been reinstated by Congress numerous times in the past. However, the tax law passed late last year—the Consolidated Appropriations Act (CAA)— grants a long reprieve. Under the CAA, the WOTC has been extended for five years through 2026 (it was set to expire again after 2021).

Now, let’s review the basics for 2021. Generally, the credit equals 40 percent of up to $6,000 of a qualified employee’s first-year wages, for a maximum credit of $2,400 per worker. But the WOTC is higher for certain categories.

For instance, it can be claimed on the first $24,000 of wages for hiring a veteran with a service-connected disability, up to a maximum of $9,600 per qualified worker. This credit isn’t limited to any specific dollar amount, but it can’t exceed the amount of your business tax liability or Social Security tax owed.

Say your client hires 10 quailed workers in 2021, the maximum total credit is generally $24,000! The credit is available for hiring workers from one of these target groups:

• Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients. These individuals are part of a family receiving assistance from a state plan approved under Part A of Title IV of the Social Security Act relating to TANF. 
• Qualified veterans (including disabled veterans).The veteran must be unemployed for at least four weeks, but less than six months in the one-year period ending on the hiring date.
• Ex-felons. A qualified ex-felon is a person hired within a year of being convicted of a felony or being released from prison.
• Designated Community Residents (DCRs). The worker must reside in an empowerment zone, enterprise community or renewal community and continue to live there after employment.
• Vocational rehabilitation referrals. This applies to someone with a physical or mental disability that has been referred to the employer during or after rehabilitative services under certain programs.
• Supplemental Nutrition Assistance Program (SNAP) recipients. This covers members of a family that received SNAP benefits for the previous six months or at least three of the previous five months.
• Supplemental Security Income (SSI) recipients. A person is a qualified SSI recipient for any month in which he or she received SSI benefits within 60 days of the hiring date.
• Long-term family assistance recipients. This applies to family members that receive assistance under a Title IV-A program.
• Qualified long-term unemployment recipients. A qualified long-term unemployment recipient is someone who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during this time.

To cap things off, your business clients may qualify for a special credit for hiring youths aged 16 or 17 residing in an empowerment zone or enterprise community during the summer. This credit equals 40 percent for the first $3,000 of wages paid between May 1 and September 15, up to a maximum of $1,200 for each qualified worker.

Final words: Employers must follow strict certification requirements established by the IRS. This is a unique opportunity for you to offer your professional guidance.