With many businesses facing a tight job market, the Internal Revenue Service reminds employers to check out a valuable tax credit available for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment.
During National Small Business Week, May 1 to 7, the IRS is highlighting tax benefits and resources tied to the theme for this year’s celebration: “Building a Better America through Entrepreneurship.” For any business now hiring, the Work Opportunity Tax Credit may help.
This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment.
With millions of Americans out of work at one time or another since the pandemic began, the IRS notes that one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and received state or federal unemployment benefits during part or all of that time.
The WOTC is available for wages paid to certain individuals who begin work on or before Dec. 31, 2025.
The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:
To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA).
It must be submitted to the SWA within 28 days after the eligible worker begins work. Employers should not submit Form 8850 to the IRS.
Since many new hires may lack workplace experience, one way that employers can help these workers get off to a good start is to make sure they have the right amount of tax taken out of their pay.
A great way to do that is to encourage them to use the Tax Withholding Estimator, a free online tool available on IRS.gov.
By filling in a few key pieces of information, an employee can use the Tax Withholding Estimator to estimate the right amount of tax to have taken out of their pay. Among other things, this online tool can help them see how withholding affects their take-home pay, expected refund or tax due.
The Tax Withholding Estimator will also help them correctly fill out Form W-4 , Employee’s Withholding Certificate. The employee gives this form to their employer, not the IRS.
Once an employee has been on the payroll for a while, they can also use this tool to update their withholding to reflect important life changes, such as getting married, getting divorced or having a child.
The Tax Withholding Estimator can also be a useful tool for existing employees by helping them avoid a year-end tax surprise. For more information, visit IRS.gov/Withholding.
Eligible businesses then claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. This is a one-time credit for each new hire and an employer cannot claim the WOTC for employees who are rehired.
The credit is first figured on Form 5884, Work Opportunity Credit, and then claimed on Form 3800, General Business Credit.
Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans.
These organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans.
Additionally, see the LB&I and SB/SE Joint Directive on the WOTC the IRS issued to help certain employers affected by extended delays in the WOTC certification process.
For more information about the Work Opportunity Tax Credit, visit IRS.gov/WOTC.
The Senate last year passed a major bill dealing with maintaining pre-eminence in technology, manufacturing, national security, and global competition, “Senate Amendment to H.R. 4521, United States Innovation and Competition Act of 2021.”
The House, having passed the related “America COMPETES Act of 2022,” opposes the Senate version, and on April 4, 2022 Speaker Pelosi requested a conference with the House to resolve their differences.
They cover a large number of policy areas aimed generally at obtaining critical resources for the homeland and not selling them to our enemies.
The House bill is 3,600 pages long, the Senate’s 2,300 pages. Staffs and lobbyists from many different quarters of the economy have been devouring these bills since the Biden administration took office.
Our interest in these bills is to make the case for the Employee Retention Tax Credit, Expanded Work Opportunity Tax Credit, Restaurant and other small business loans and grants, and our critically important WOTC program add-ons for service members, people with disabilities, and other improvements that enlarge our reach and add value.
Importantly, Leaders and members of the tax-writing committees, chosen from both Parties of House and Senate, will sit as members of the Conference Committee, that is, the “conferees.”
This will give us plenty of opportunity to reach out to the conferees to press our case for moving now to enact our agenda on this major bill, and not wait for passage on the perilous FY 2023 budget reconciliation bill this September 30th (which is likely to be December 9th for final passage.)
Of course, this bill may falter or fail of passage; it may be combined with the FY 2023 budget measure. Tax leaders may argue against early action, but it’s May 5 and early action is precisely what Senator Ben Cardin took the Senate floor yesterday to urge again on behalf of the nation’s restaurants and other small businesses.
When Napoleon was asked how he fought a battle, he answered, “First you engage, then you see.”
The Conference has not had its first meeting but the Senate began action yesterday by taking several votes on “motions to instruct” the conferees. You may find a thumbnail title for each motion and vote result by going to www.democrats.senate.gov/floor.
It’s the House which asked the Senate for the conference. Speaker Pelosi was first to appoint conferees (Ways and Means Chairman Neal and Ranking Member Brady are on the list), but because the list is long we will reserve the full House list for our next report.
Here’s the list of 26 senators appointed as conferees by Senate Majority Leader Schumer in consultation with Senate Minority Leader McConnell.
The list is:
Cantrell
Menendez
Wyden
Peters
Murray
Brown
Warner
Kelly
Warnock
Hickenlooper
Tester
Heinrich
Baldwin
Wicker
Crapo
Risch
Burr
Portman
Grassley
Shelby
Toomey
Barrasso
Capito
Cornyn
Young
Moran
We will expand on our grassroots strategy in subsequent reports.
Please contact TIA if you would like copies of the legislative text.