Employers can qualify for a tax credit known as the work opportunity tax credit that is worth as much as $2,400 for each eligible employee ($4,800, $5,600 and $9,600 for certain veterans and $9,000 for “long-term family assistance recipients”). The credit was extended by the PATH Act of 2015 to cover certain individuals who began working for you after December 31, 2014 and before January 1, 2020. The credit is available on an elective basis for employers hiring individuals from one or more of 10 targeted groups who complete a minimum of 120 hours of service for the employer. The credit is calculated based on the number of hours of service the employee completes for the employer. The credit ranges from 25% to 40% of first year wages and 50% of second year wages.
Members of Targeted Groups
- Qualified IV-A recipient. An individual who is a member of a family receiving assistance under a state plan approved under part A of title IV of the Social Security Act relating to Temporary Assistance for Needy Families (TANF). The assistance must be received for any 9 months during the 18-month period ending on the hiring date.
- Qualified veteran. A veteran who is any of the following:
- A member of a family that has received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date.
- Unemployed for a period or periods totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.
- Unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
- Entitled to compensation for a service-connected disability and is hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces.
- Entitled to compensation for a service-connected disability and was unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
Note – To be considered a veteran, the applicant must be:
- A veteran that has served on active duty (not training) in the Armed Forces of the United States for more than 180 days or have been discharged for released from active duty for a service connected disability, and
- Not have a period of active duty of more than 90 days that ended during the 60-day period ending on the hiring date.
- Qualified ex-felon. An ex-felon who has been convicted of a felony under any federal or state law, and is hired not more than 1 year after the conviction or release from prison for that felony.
- Designated community resident. An individual who is at least age 18 but not yet 40 on the hiring date and lives within an empowerment zone or rural renewal county.
- Vocational rehabilitation referral. An individual who has a physical or mental disability resulting in substantial handicap to employment and who was referred to the employer upon completion of rehabilitation services by a state-approved rehabilitation agency.
- Summer youth employee. An individual who:
- Performs services for the employer between May 1 and September 15;
- Is at least age 16 but not yet age 18 on the hiring date (or if later, on May 1);
- Has never worked for the employer before; and
- Lives within an empowerment zone.
- Recipient of SNAP benefits (food stamps). An individual who:
- Is at least age 18 but not yet age 40 on the hiring date, and
- Is a member of a family that:
- Has received SNAP benefits for the 6-month period ending on the hiring date; or
- Is no longer eligible for such assistance under section 6(o) of the Food Stamp Act of 1977, but the family received SNAP benefits for at least 3 months of the 5-month period ending on the hiring date.
- SSI recipient. An individual who is receiving supplemental security income benefits under title XVI of the Social Security Act for any month ending during the 60-day period ending on the hiring date.
- Long-term family assistance recipient. An individual who is a member of a family that:
- Has received TANF payments for at least 18 consecutive months ending on the hiring date; or
- Receives TANF payments for any 18 months (whether or not consecutive) beginning after August 5, 1997, and the earliest 19-month period beginning after August 5, 1997, ended during the past 2 years; or
- Stopped being eligible for TANF payments because federal or state law limits the maximum period such assistance is payable and the individual is hired not more than 2 years after such eligibility ended.
- Qualified long-term unemployment recipient. An individual hired after 2015 who on the day before the individual begins work for the employer is in a period of unemployment that is not less than 27 consecutive weeks and includes a period in which the individual received unemployment compensation under state or federal law.
How to Apply for the Tax Credit
All employers must complete the IRS Form 8850 and the USDOL Form ETA 9061 for new hires. Once the employer obtains the 8850 and 9061 information, the information must be submitted to the online application system within 28 days of the employee start date.
There is an exception to the 28-day deadline for members of the targeted groups who began working for you on or after January 1, 2015 and on or before August 31, 2016. IRS Notice 2016-40 extends by three months the transition relief for meeting the 28-day deadline. Employers now have until September 28, 2016, to submit Form 8850 to the state workforce agency requesting certification.
The online application system can be accessed at:
Claiming the Tax Credit
In order to claim the tax credit, the employer must receive a certification from the state workforce agency before claiming the credit.