Our Compliance Manager, Brian Elfrink, recently sat down with Tax Credit Company’s Chief Operating Officer, LaRae Pieroni, and their VP of Government Affairs, Max Shenker, to understand the current state of the Work Opportunity Tax Credit (WOTC) program, why employers should participate and what employers need to know to remain compliant.
WOTC Intention and Benefits
WOTC is a federal program that incentivizes employers to hire individuals from certain targeted groups, such as victims of a hurricane or veterans, who have consistently faced significant barriers to employment. This program offers financial incentives to participating businesses, and even more importantly, has a significant societal impact as well.
Employers who hire eligible applicants will receive a credit of between $1,200 to $9,600 per qualified employee who is hired and retained. There is an additional benefit of retaining the employee longer than the initial minimum. This incentive encourages employers to feel more motivated to hire not only eligible, but qualified individuals who can make a greater impact on the workforce long term.
The program also helps targeted employees move from economic dependency to self-sufficiency while earning a steady income and becoming contributing taxpayers. To which, the social impact of the WOTC program carries more weight from the employer’s perspective knowing they are helping to support vulnerable members of their communities.
WOTC is set up to be flexible so that legislators can propose new provisions within the program to address current events. For example, there is a proposal to address the heightened unemployment rate due to COVID-19. As such, WOTC has served as a reliable vehicle to support eligible individuals, but also to address certain conditions in the employment marketplace or even natural disasters.
While the tax code is more straightforward than other programs, staying compliant when participating in the WOTC program can get tricky.
Compliance Related Components of the Program
While the WOTC program addresses employment barriers for individuals, employers looking to participate in the program are faced with several compliance challenges:
- Identifying eligible individuals.
- Completing the credit application and approval process.
- Missing credit opportunities.
- Calculating the credit incorrectly.
During our interview, Max Shenker shed light on the process and policy updates that will make the mechanics less complex.
Identifying Eligible WOTC Applicants
One of the challenges employers face is identifying who from the applicant pool qualifies for the WOTC program. The IRS maps out who is eligible fairly clearly and simple questions or even adding Form 8850 to the application could minimize missed opportunities.
Completing the Credit Application
For an applicant to be considered for the WOTC program, they must fill out the first page of Form 8850, in addition to the standard job application. The employer must then submit the application to the correct government agency between the date of hire and 28 days later.
Employers cannot receive any credits until the applicant is identified as a qualified member of the WOTC group and has acquired a certificate noting this fact.
Calculating the Credit
While the actual dollar amount will vary, employers must calculate the credit accurately for their finances. When calculating the credit amount the employer must consider the two-tier retention period: 400 hours for a 40% tax credit or at least 120 hours, but less than 400 hours, for a 25% tax credit. There cannot be two credits claimed on the same wages.
Using a third-party, integrated system, like Tax Credit Company (TCC)’s, can help avoid most of these issues, while keeping you in compliance. TCC assists employers in identifying critical groups more easily and helps applicants apply without confusion or roadblocks.
The Possibilities Available With an Integrated System
After the employee is offered a position, several processes need to take place before employers can benefit from the program. Missing credit opportunities is among the typical pain points suffered by employers when they try to participate in the WOTC program. An integrated, automated system can help.
Until 2010, Form 8850 required a “wet” signature – a physical signature by both the applicant and the employer before being turned over to the IRS and state agencies. This requirement was subsequently updated so that an electronic signature was also deemed acceptable.
When an onboarding process is offered online, and even integrated with an application, there are several benefits for the employer and the employee:
- Avoidance of application compliance issues.
- No missed steps for either employers or applicants.
- Seamless credit application.
Compliance issues are common in the workplace. With an online program, however, HR professionals can easily check off each step and avoid missing any necessary paperwork, sending something to the wrong agency or missing out on helpful tax credits. TCC’s integrated WOTC services can remove most of the manual steps for employers so they can get back to ensuring a smooth transition and simple tax credit application.
Maintaining Compliance with TCC and CIC Plus
TCC can help employers through the WOTC process by integrating with their online application tracking system (ATS). The applicant can complete the WOTC survey online which will be saved in TCC’s system. Once they get a notification from the employer, or from the employer’s payroll, indicating an individual has started working, this will trigger an online batch file that will turn the information over to the appropriate state agency. From there, the state will determine WOTC eligibility. TCC will then track the application approval through the state’s tracking website.
A seamless online hiring and onboarding process is possible when you combine TCC and CIC Plus’ services. While TCC helps employers track and stay compliant within the WOTC program, CIC Plus enables employers to streamline key compliance activities during onboarding such as completing Form I-9 for employee verification and all necessary federal, state and local tax withholding forms.