The American Taxpayer Relief Act of 2012 (ATRA) (H.R. 8) extends the Work Opportunity Tax Credit (WOTC) for hiring certain workers through Dec. 31, 2013.
The VOW to Hire Heroes Act of 2011 made changes to the Work Opportunity Tax Credit (WOTC), including adding new categories to the qualified veterans targeted group and expanding the WOTC to make a reduced credit available to tax-exempt organizations for hiring qualified veterans. The VOW Act also extended the WOTC for qualified veterans hired before Jan.1, 2013. The other targeted group categories were not extended by the VOW Act and expired for targeted group members other than qualified veterans hired after Dec.31, 2011.
ATRA extends the WOTC for qualified veterans hired before Jan. 1, 2014. ATRA also extends the WOTC for targeted group members, other than qualified veterans, hired after Dec.31, 2011, and before Jan.1, 2014.
Pre-screening and Certification Requirements
All employers must obtain certification that an individual is a member of a targeted group, before the employer may claim the WOTC. The process for certifying the veterans for this credit is the same for all employers. To obtain certification, employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
Normally, an eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. However, as discussed below, the IRS has provided special transition rules for the recent legislative changes.
Special Transition Rules:
Under the special transition rules, an employer who hires a member of a targeted group, other than a qualified veteran, after Dec.31, 2011, and on or before March 31, 2013, will be considered to have timely filed Form 8850 if it submits the completed form to the respective state workforce agency by April 29, 2013. An employer who hires a veteran after Dec. 31, 2012, and on or before March 31, 2013, will be considered to have timely filed Form 8850 if it submits the completed form to the respective state workforce agency by April 29, 2013. The 28-day rule will be applicable after that date. See Notice 2013-14 for further processing and transition timeframe rules for Form 8850.
For more information on the pre-screening and certification process, see Form 8850, Pre-Screening Notice and Certification Request and the instructions.
Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.
Claiming the Credit
For taxable employers, the WOTC may be claimed for hiring targeted group members, including qualified veterans, who begin work before Jan.1, 2014.
After the required certification is secured, taxable employers claim the tax credit as a general business credit against their income tax. The process for taxable employers claiming the WOTC remains the same.
For additional information, see:
- Form 5884 (with instructions) (PDF),
- Form 3800 (PDF),
- Instructions for Form 3800 (PDF), and
- Your business’s related income tax return and instructions (i.e., Forms 1040, 1041, 1120, etc.)
Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before Jan.1, 2014. Tax-exempt employers may not claim the WOTC for other targeted group members.
After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).
File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit as the forms are processed separately.
Please feel free to contact us at l Creative Tax at (562) 251-1300 if you need more information or assistance.