The Work Opportunity Tax Credit (WOTC) is “a Federal [income] tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment,” per the U.S. Department of Labor Employment and Training Administration. “Target groups” include certain veterans, recipients of Temporary Assistance for Needy Families (TANF), ex-felons, and people who reside in certain designated communities, among others. For a full breakdown of the target groups, see the Employment and Training Administration’s website.
Normally, employers looking to claim WOTC tax credits have 28 days to file the proper paperwork with their State Workforce Agency (SWA), following the hire of an eligible employee.
“Normally, the WOTC is a one-out opportunity,” explains Ezrie Yellin, product manager at Equifax Workforce Solutions. “If you hire someone and don’t screen them, you can never screen them again — even if you rehire them.”
However, the WOTC often enters periods of hiatus. During these periods, Yellin says, the rules of screening are still enforced, but SWAs don’t certify any submitted certification requests.
“Essentially, what [SWAs] do is receive [the requests], stamp them as ‘Received — Timely,’ and then they hold them, pending an end to the hiatus,” Yellin says.
The end of a WOTC hiatus requires congressional action. Last year, WOTC was on hiatus from January 1, 2014 until December 19, 2014, which meant that employers could not receive WOTC credits for most of 2014.
Now, the IRS has issued Notice 2015-13, which opens a “Transitional Relief Period.” This relief period suspends the traditional 28-day filing rule and allows employers to retroactively screen and file paperwork for any employees hired between January 1, 2014 and December 31, 2014 — as long as employers file their paperwork by April 30, 2015.
“Essentially, what’s happened now is the 2014 year is reopen,” Yellin says. “Normally, you can’t go back in history and screen for WOTC, but the IRS has offered that, [for] anyone who was hired in 2014, you can go back, re-screen them or screen them for the first time, identify them as eligible for the program, and submit the forms to the State Workforce Agencies for certification, so you can get that credit.”
Yellin calls Notice 2015-13 an “amazing” development, as it basically allows employers to go back in time and resubmit 2014 hires — even if they did not submit paperwork for those hires in 2014 — for WOTC.
Yellin is also careful to note that, even though WOTC reentered hiatus on January 1, 2015, Notice 2015-13 only applies to people hired in 2014.
According to Yellin, this chance to retroactively screen new hires from 2014 is perfect for two kinds of employers:
- Employers who usually participate in the WOTC, but who were unable to submit certain eligible employees last year. “There’s always going to be some people who they missed, people who either didn’t finish the screening or didn’t sign their forms on time,” Yellin says. “Those people are no longer lost credits. So for a company that participates anyway, this is a great way to catch up on some of these screenings.”
- Employers who didn’t screen anyone in 2014: “This is essentially a free year for them to go back and recoup that credit,” Yellin says.
Best Practices for WOTC Screening
As noted above, some employers miss out on WOTC credits when new hires are unable to complete paperwork and/or the screening process on time. To mitigate the risk of losing out on tax credits for that reason, Yellin offers a couple of tips on the best WOTC screening practices:
- Screen where your employees are: “That means you should screen them on paper if you do your hiring by paper,” Yellin explains. “If you use an online system or an ATS, integrate the WOTC screening into that. If you use far-flung remote workers who don’t have access to computers or [to whom] you can’t send paper to many consultants offer screening by IVR — interactive voice response.”
- Utilize e-signature when available: “The e-signature has been allowed in the WOTC program for a couple of years now,” Yellin says. “If you can offer your applicants or employees an e-signature option, that dramatically increases participation and credit capture and realization.”
WOTC is available to all employers in all 50 U.S. states, the U.S. Virgin Islands, and Puerto Rico.
“You don’t need to apply to be able to take the credit,” Yellin says. “You don’t need to be identified as an employer who uses the credit by an agency. All you have to do is screen applicants and send the form to the State Workforce Agency within 28 days of the person’s start date.”
Now that Notice 2015-13 has reopened screening for employees hired in 2014, employers have no excuse not to take advantage of WOTC — as long as they can submit their paperwork by April 30, 2015, that is.
For more information on WOTC, Notice 2015-13, and how to apply, click here.