The moldmaking industry has a history of recognizing the sacrifices of servicemen and servicewomen. This is evident through initiatives such as the iWarriors program that honors severely injured members of all branches of the U.S. armed forces by providing them with personalized iPads. It is this respect and passion for supporting veterans that has prompted the focus of this month’s column on the Work Opportunity Tax Credit (WOTC). This federal tax incentive program enables veterans to transition from the military to the private sector while participating employers reduce their federal income tax liability.
The WOTC program is a federal government initiative designed to increase employment opportunities for people who have certain barriers to employment, including those on food stamps, felons and others. This column, however, focuses solely on veterans. Employers who meet the criteria receive a federal income tax credit that reduces their federal income tax liability. This credit was extended retroactively by the Protecting Americans from Tax Hikes Act of 2015 (PATH), passed in 2015 (see the February column for a discussion of the tax items in PATH pertinent to tool builders). The company must have tax liability to use the income tax credits, and unused credits can be carried back one year and carried forward 20 years. Interestingly, the WOTC is one of the only general business credits that offsets both regular income tax and the alternative minimum tax (AMT).
Here are some details about the WOTC program:
• The credit is equal to a percentage of the eligible employee’s wages.
• WOTC encourages employers to hire from specific target groups.
• The employee must work at least 120 hours for the employer to receive a credit.
• Maximum WOTC is generally $2,400 per employee (40 percent of the first $6,000 of wages) over the first year of employment. However, employing veterans with a service-connected disability allows for an increased amount of credit.
• The employee must complete IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before starting the job, requiring the coordination of the company’s human resource and finance departments.
• Form 8850 must be postmarked within 28 days of the employee’s start date and sent to the state designated local agency for certification. (Note: The IRS recently issued a notice granting relief of time to file Form 8850. Employers will have until June 29, 2016, to file for eligible employees hired between January 1, 2015, and May 31, 2016).
• WOTC law contains a sunset date, which has been amended several times over the life of the program. The credit is currently set to expire on December 31, 2019. A sunset provision or clause is a measure within a statute, regulation or other law that provides that the law shall cease to have effect after a specific date, unless further legislative action is taken to extend the law.
• Many states have credits that piggyback on the WOTC.
The maximum WOTC for hiring a qualifying veteran is generally $2,400. However, it can be as high as $4,800, $5,600 or even $9,600, depending on a variety of factors, such as whether the veteran has a service-connected disability, the period of his or her unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.
In general, the term “qualifying veteran” refers to any veteran who is certified by the designated local agency as:
• Receiving assistance through a supplemental nutrition assistance program under the Food and Nutrition Act of 2008 for at least a three-month period ending during the 12-month period ending on the hiring date.
• Entitled to compensation for a service-connected disability, and having a hire date that is not more than one year after having been discharged or released from active duty in the U.S. armed forces, or having aggregate periods of unemployment during the one-year period ending on the hire date that equals or exceeds six months.
• Having aggregate periods of unemployment during the one-year period ending on the hire date that equals or exceeds four weeks (but less than six months).
• Having aggregate periods of unemployment during the one-year period ending on the hire date that equals or exceeds six months.
The term “veteran” means any individual who is certified by the designated local agency as:
• Having served active duty (other than active duty for training) in the U.S. armed forces for a period of more than 180 days.
• Having been discharged or released from active duty in the armed forces for a service-connected disability and not having any day during the 60-day period ending on the hire date that was a day of extended active duty.
To ensure the credit is being captured properly, making the determination of whether a veteran (or other qualifying employee) is a member of a targeted group should be part of a shop’s hiring practices. It is also essential for finance and human resource departments to work together to meet the record-keeping and specific compliance deadlines that exist for identifying and certifying an employee is part of a targeted group.