The credit rate is reduced to 25% of qualified first-year wages for an employee who completes at least 120 but less than 400 hours of service. That translates into a maximum credit of $1,500 (25% x $6,000) per eligible employee. Not bad at all.
Special rules apply to certain veterans, long-term family assistance recipients, and summer youth employees. More on those special rules later.
To be an eligible employee, your new hire must be certified as a member of a targeted group by the applicable State Workforce Agency (SWA). You as the employer can either: (1) obtain the certification by the day the employee begins work or (2) complete a pre-screening notice, using IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit), by the day you offer a job to a prospective employee. Then you submit Form 8850 to the SWA (not to the IRS) within 28 days after the employee begins work.
This federal income tax credit generally equals 40% of qualified first-year wages paid to an eligible employee, up to a maximum wage amount of $6,000. That translates into a maximum credit of $2,400 per eligible employee (40% x $6,000). That helps.
Qualified first-year wages means qualified wages paid for services rendered during the one-year period beginning with the day the newly hired employee begins work.
For links to the name, address, phone and fax numbers, and email address of the WOTC coordinator for each SWA, see here. A simplified certification process is available for qualified unemployed veterans.
Which employees are eligible for the Work Opportunity Tax Credit?
You can only claim the WOTC for hiring a member of a targeted group. Targeted groups include: Qualified recipients of aid to families with dependent children or a successor program.
Qualified military veterans. Qualified ex-felons.
Designated community residents. Vocational rehabilitation referrals.
Qualified SSI recipients (anyone who is certified by the designated local agency as receiving Supplemental Security Income benefits under title XVI of the Social Security Act for any month ending within the 60-day period ending on the hiring date). Long-term family assistance recipients.
Qualified supplemental nutrition assistance benefits recipients. Qualified summer youth employees.