Work Opportunity Tax Credit

Overview

The Work Opportunity Tax Credit (WOTC) is a federal income tax benefit administered by the U.S. Department of Labor (DOL) for employers who hire individuals from specified target populations. WOTC reduces a business’s federal tax liability, serving as an incentive to select job candidates who may be disadvantaged in their efforts to find employment.

The main objective of this program is to enable individuals to become employed, earn a steady income and become contributing taxpayers. WOTC joins other workforce programs that help provide incentives for workplace diversity and improve access to good jobs for American workers.

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News for Employers & Consultants

Update: March 26, 2013

The IRS has published IRS Notice 2013-14, which gives employers additional time to file WOTC applications for members of WOTC target groups hired between January 1, 2012, and March 31, 2013:

• Transition relief for taxable employers that hire members of WOTC target groups (other than qualified veterans)
  • A taxable employer that hires a member of a WOTC target group on or after January 1, 2012, and on or before March 31, 2013, will now be able to file on or before April 29, 2013. The WOTC tax credit for non-veteran target groups is not available for qualified tax-exempt organizations
• Transition relief for all employers that hire qualified veterans
  • An employer that hires any qualified veteran on or after January 1, 2013, and on or before March 31, 2013, will now be able to file on or before April 29, 2013. The WOTC tax credit for veterans is available for both for-profit employers and qualified tax-exempt organizations.

Update: January 9, 2013

On January 3, 2013, the President signed into law the American Tax Payer Relief Act of 2012, which authorizes an extension of WOTC that:

• continues authorization of all veteran target groups (including those under the VOW to Hire Heroes Act) until December 31, 2013;
• retroactively reauthorizes all WOTC non-veteran target groups from December 31, 2011, to December 31, 2013;
• retroactively reauthorizes Empowerment Zones for the DCR (Designated Community Resident) and Summer Youth target groups from December 31, 2011, to December 31, 2013; and
• does NOT reauthorize the Recovery Act disconnected youth and Recovery Act unemployed veterans target groups.

The WOTC Unit will begin mailing decisions for applications filed during the 2012 hiatus on or before January 18, 2013.

DOL released an updated ETA Form 9061, Individual Characteristics Form, with a June 2012 revision date. Based on DOL guidance, after October 29, 2012, TWC will no longer accept previous versions of ETA Form 9061.

Based on IRS Notice 2012-13, employers are allowed to file IRS Form 8850 with e-signatures if:

• both the employer and employee sign electronically; or
• the employee signs electronically and the employer signs in ink.

NOTE: If the employee signs in ink, an e-signature by the employer is not permitted.

Employers may now submit the IRS Form 8850 by fax or e-mail. Please see Applying for WOTC for instructions for filing the form by fax or e-mail.

On November 21, 2011, President Obama signed into law the VOW to Hire Heroes Act of 2011, which amends and expands the definition of veteran target groups for WOTC. The changes and new provisions in this Act apply to individuals who begin work for an employer the day after the Act’s enactment, November 22, 2011, and before January 1, 2013. The Act provides legislative authority for tax credits for veteran target groups, but did not extend any of the other (non-veteran) WOTC target groups. Additionally, qualified “tax-exempt” [i.e., 501(c)] organizations can now participate in the WOTC program by hiring qualified veterans.

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Qualifying for WOTC

Employers are eligible for a tax credit when hiring individuals with specified barriers to employment identified as target groups. TWC will verify for employers which target group applies. Tax credits currently are available for hires in the following categories:

Veterans

Non-Veterans

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Applying for WOTC

Within 28 days of the employee’s start date, employers hiring individuals from one or more of the identified target groups must complete the following:

• IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit
• ETA Form 9061*, Individual Characteristics Form (If the new hire has been given the ETA Form 9062, Conditional Certification, it may be used in lieu of the ETA Form 9061.)

* When applying for one of the veteran target groups under the VOW to Hire Heroes Act, employers and consultants should indicate in red at the top margin of ETA Form 9061 the veteran target group for which they are requesting certification.

Mail, fax, or e-mail forms to:

Texas Workforce Commission
WOTC Unit
101 E 15th St, Rm 202T
Austin, TX 78778-0001
Fax: 512-463-8819
wotc@twc.state.tx.us

If filing the above forms by e-mail, the attached forms must be password-protected, and the password must be sent in a separate e-mail to the same e-mail address. Employers/consultants submitting forms by fax or e-mail will be required to maintain the original forms for the required retention period (5 years for certifications and 1 year for denials).

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Requesting a Claim Reconsideration

When a WOTC application is denied, if the employer has documentation to indicate that the application was eligible for certification, the employer may request that the claim be reconsidered for a specific target group. If you would like to request a claim reconsideration, please provide the documentation listed below for the applicable target group. All requests for reconsideration must include supporting documentation in order to be processed. Please include the WOTC claim/control number listed on the denial letter or denial report.

Veteran Target Groups (includes disabled veteran and unemployed veteran)

• Applicant’s DD-214 (record of military service)
• Rating Letter (provides service-connected disability rating required for disabled veterans)

No unemployment documentation is necessary. Texas’ WOTC unit will verify the "unemployment" requirements for disabled veterans and unemployed veterans.

Ex-Felon

• Court documentation indicating felony conviction; or
• If a federal conviction, parole/probation officer information including name and phone number

DCR Designated Community Resident)

Documentation to verify address (e.g., a current utility bill, telephone bill, or driver license) indicated on IRS Form 8850

Vocational Rehabilitation

• Individualized Plan for Employment (IPE) documentation indicating open date, close date, and/or last date of service
• Vocational counselor information including name and phone number

Out-of-State Benefits

If you have information that indicates the applicant received Temporary Assistance for Needy Families, Supplemental Security Income, Supplemental Nutrition Assistance Program benefits, or unemployment benefits from another state, please provide the name of the state, and the Texas WOTC unit will submit an out-of-state request to the indicated state.

Mail request and supporting documentation to:

Texas Workforce Commission
Attn: WOTC Unit
101 East 15th Street, Room 202T
Austin, TX 78778

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Responding to a Needs Request

When an incomplete WOTC application is submitted by the employer, TWC's WOTC Unit will send a needs request letter to the employer. The employer must respond within 60 days or the application will be closed.

• View form field explanations for IRS Form 8850 and ETA Form 9061

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Calculating the Tax Credit

The tax credit amount under the WOTC program depends on employee retention. For most target groups, WOTC is based on qualified wages paid to the employee for the first year of employment. The credit to for-profit employers is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours, and 40% for those employed 400 hours or more. The credit to non-profit employers is 16.25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours, and 26% for those employed 400 hours or more. For Long-Term Family Assistance recipients, WOTC is based on a two-year retention period.

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State of Texas Tax Refund

The State of Texas Tax Refund for Employers of TANF or Medicaid Clients is another tax benefit for employers. To qualify, an employer must:

• pay certain State of Texas taxes;
• have paid wages during the first year of employment to a Texas resident who received at least one month of TANF or Medicaid benefits within six months of the employee start date; and
• have provided and paid part of a qualifying employee’s HMO health plan, self-funded or self-insured ERISA plan, or a health plan approved by the Texas Commissioner of Insurance.

Under the State of Texas Tax Refund for Employers of TANF or Medicaid Clients program, an employer may receive a refund of up to $2,000 for each qualifying employee hired.

To apply, complete TWC Form 1098, Application for Refund of Taxes Paid to the State of Texas.

Mail or fax form to:

Texas Workforce Commission
WOTC Unit
101 E 15th St, Rm 202T
Austin, TX 78778-0001
Fax: 512-463-8819

Forms must be mailed or faxed on or after January 1 and before April 1 of the calendar year following the year taxes and wages were paid.

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Forms

• IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit
• Instructions for Form 8850
• ETA Form 9061, Individual Characteristics Form
• IRS Form 2848, Power of Attorney and Declaration of Representative
• Instructions for Form 2848
• TWC Form 1098, Application for Refund of Taxes Paid to the State of Texas

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