The Work Opportunity Tax Credit is available for a portion of first-year wages paid to certain qualifying employees who begin work during 2013. The credit is available for employers who hire members of the following targeted groups:
- Long term family assistance recipients
- Vocational rehabilitation referrals
- Summer youth employees
- Nutrition assistance recipients
- Social security income recipients
- Designated community residents
- Qualified IV-A recipients
This tax credit existed during 2012, but it was only available to employers hiring veterans (although in prior years it was available for all of the above targeted employees). The American Taxpayer Relief Act of 2012 extended the tax credit for the all of the above employees who begin work during 2013.
The credit is 40% of qualified first-year wages for certified workers who work at least 400 hours, and 25% for certified workers who work at least 120 hours, but less than 400 hours. These employees must be certified by designated local agencies, either in advance or immediately after employment begins. IRS Form 8850 guides employers through the certification process.
Qualified first-year wages are limited to:
- $6,000 for any targeted employee
- $14,000 for a veteran who was unemployed for at least six months within one year prior to the hire date
- $12,000 for a veteran entitled to compensation for a service-connected disability with a hire date within one year after having been discharged or released from active duty in the U.S Armed Forces
- $24,000 for a veteran entitled to compensation for a service-connected disability who is unemployed for at least six months within one year prior to the hire date
- $3,000 for a summer youth employee for wages paid during any 90 day period between May 1 and September 15
Each of the targeted employee groups above must meet eligibility requirements.
In the following examples, assume the employee worked at least 400 hours during the year and the employer is therefore eligible for the full 40% credit.
Example: ABC Corp hires Joan, a qualifying ex-felon on October 1, 2013. Joan earns $25,000 in wages during her first year of work. ABC Corp is eligible for a tax credit of $2,400 (40% times the maximum qualifying wages of $6,000).
Example 2: XYZ Corp hires Jane, a qualifying veteran who has been unemployed for six months immediately prior to the hire date. Jane earns $20,000 during her first year. XYZ Corp is eligible for a tax credit of $5,600 (40% times the maximum qualifying wages of $14,000 for a veteran who was unemployed for at least 6 months during the year prior to the hire date).
Example 3: Tim is a qualifying veteran who is receiving compensation for a service-related disability. Tim is hired by MNO Corp and is paid $30,000 in wages. Tim had been unemployed for 8 months immediately prior to the hire date. MNO Corp is eligible for a $9,600 credit (40% times the maximum qualifying wages of $24,000 for a veteran who is disabled and unemployed for at least 6 months during the year prior to the hire date.)
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.