Work Opportunity Tax Credit

The legislative changes under the American Taxpayer Relief Act of 2012 (H.R. 8), retroactively allow taxable employers to claim the Work Opportunity Tax Credit (WOTC) for all of the targeted group employee categories listed on Form 5884, if they were hired on or after Jan. 1, 2011, and before Dec. 31, 2013.

That same act also extends the expanded Work Opportunity Tax Credit available for hiring qualified veterans through Dec. 31, 2013, for both taxable and tax-exempt employers.

The process for taxable businesses claiming the WOTC for all categories remains the same. See the information below for more details.

For tax-exempt employers claiming the WOTC for veterans categories, follow the instructions shown under the expanded Work Opportunity Tax Credit available for hiring qualified veterans and on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans(PDF).

Pre-screening and Certification

All employers must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit, by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.

However, the IRS has issued transition relief rules for employers who hire employees from one of the targeted group categories, other than qualified veterans, during 2012. For targeted group members other than qualified veterans hired on or after Jan.1, 2012, and on or before March 31, 2013, an employer will be considered to have timely filed Form 8850 if it submits the completed Form 8850 no later than April, 29, 2013. For qualified veterans hired on or after Jan.1, 2013, and on or before March 31, 2013, an employer will be considered to have timely filed Form 8850 if it submits Form 8850 no later than April 29, 2013. See Notice 2013-14 for further information.

Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.

Claiming the Credit

Taxable Employers

After the required certification is secured, taxable employers claim the tax credit as a general business credit against their income tax by filing the following:

Form 5884 (with instructions) (PDF),

Form 3800 (PDF),

Instructions for Form 3800 (PDF), and

Your business’s related income tax return and instructions (i.e., Forms 1040, 1041, 1120, etc.)

Tax-exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before Jan. 1, 2014.

After the required certification (Form 8850) is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).

File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers not reduce their required deposits in anticipation of any credit as the forms are processed separately.

In addition to Form 5884-C and its instructions, tax-exempt employers should see IRS Notice 2012-13 and the Frequently Asked Questions & Answers for more details for claiming the credit.

If you need assistance with the IRS representation, tax preparation, tax planning and disclosure of your undeclared foreign bank accounts, please contact the Los Angeles & Orange County Tax Attorney, CPA, Zaher Fallahi, at (310) 719-1040 (Los Angeles) or (714) 546-4272 (Orange County), or e-mail to taxattorney@zfcpa.com.