A FEDERAL BUSINESS TAX CREDIT FOR IOWA’S EMPLOYERS
ABOUT
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain eligible individuals from certain targeted groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.
WOTC reduces an employer’s cost of doing business by decreasing their federal income tax liability between $2,400.00 and $9,600.00 per employee, depending on the target group identified and hours worked during the first year of employment. For employers to earn a WOTC, the new employee must work at least 120 hours during the first year of employment and have not worked previously for the employer. Employers can claim the WOTC on an unlimited number of qualified employees each year.
WHO QUALIFIES?
WOTC applies only to new employees. The new employee must belong to one of the following target groups:
- TANF Recipients: a member of a family receiving Temporary Assistance to Needy Families (TANF). Employee must have received benefits for any 9-month period during the 18-month period ending on the hiring date.
- Qualified Veteran (any of the following):
- A veteran AND a member of a family receiving SNAP for at least 3 months in the last 15 months ending on the hiring date.
- A veteran who is entitled to compensation for a service-connected disability and has a hiring date not more than one year after discharge or release from active duty in the U.S. Armed Forces.
- A veteran who is entitled to compensation for a service-connected disability and has been unemployed for a period or periods totaling at least six months during the one-year period ending on the date of hire.
- A veteran unemployed at least four weeks (whether or not consecutive) or six months or more (whether or not consecutive) in the year prior to being hired.
- Ex-Felons: convicted of a felony or released from prison for a felony within one year of the date of hire.
- Designated Community Resident
- On the date of hiring, an individual who is at least 18 years old and under 40 AND who resides in a Rural Renewal County AND continues to reside at the location after employment.
- Rural Renewal Counties in Iowa are: Adair, Adams, Appanoose, Audubon, Butler, Calhoun, Cass, Cherokee, Clay, Clayton, Emmet, Floyd, Franklin, Fremont, Hancock, Humboldt, Ida, Keokuk, Kossuth, Montgomery, Osceola, Palo Alto, Pocahontas, Poweshiek, Sac, Taylor, Union, Wayne, Winnebago and Worth
- Vocational Rehabilitation Referrals:
- An individual who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services under a State rehabilitation plan OR an Employment Network Plan under the Ticket to Work Program, OR a program carried out under the Department of Veterans Affairs.
- SNAP Recipients: an individual who is 18 to 39 years old AND a member of a family that has received food stamps for the last six months.
- Supplemental Security Income (SSI) Recipients: an individual who received SSI benefits for any month within the last 60 days ending on the hire date.
- Long-term Family Assistance Recipients (LTFA): an individual who is a member of a family that:
- Received TANF payments for at least 18 consecutive months ending on the hiring date OR;
- Received such family assistance for a total of at least 18 months (whether or not consecutive) after August 5, 1997 if the individual is hired within two years after the date that the 18 month total is reached OR;
- Stopped being eligible for assistance after August 5, 1997 due to federal or state law limits and the individual is hired not more than two years after such eligibility for assistance ends.
- Long-term Unemployed Recipient (LTUR): An individual who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during some or all of the unemployment period.
HOW TO APPLY
HOW TO CLAIM THE CREDIT
FILE FOR THE CREDIT WITH THE IRS
- After receiving a certification from IWD, employers may file for the tax credit with the IRS.
- Generally, an employer elects to take the credit by filing IRS Form 5884, Work Opportunity Credit.
- A tax-exempt organization that hires an employee in the WOTC Veteran target group should use IRS Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
- Employers also must meet requirements for the Minimum Employment Period, which is the number of hours required to worked by the employee – at 120 hours in the first year of employment -- before they can file and qualify for the tax credit.