Kelly Bullis: Work Opportunity tax credit

One of my favorite quotes is from Judge Learned Hand. “There is nothing evil, sinister, or wrong about arranging one’s affairs to pay taxes as low as possible; taxes are enforced extractions, not voluntary contribution.”

Well here is an opportunity for employers to “arrange their affairs” to “pay taxes as low as possible” and lending a helping hand to somebody who is trying to climb out of a financial hole at the same time.

One way is taking advantage of the Work Opportunity Tax Credit (WOTC). It’s all about being organized about hiring new employees. One thing most employers miss is asking the employment candidate at the point of being hired, “Do any of the following apply to you?” Then give them a list to check off all applicable items. Here is the list and then I’ll explain more:

Qualified IV-A Recipient; Qualified Veteran; Ex-Felon; Designated Community Resident; Vocational Rehabilitation Referral; Supplemental Nutrition Assistance Program Recipient; Supplemental Security Income Recipient; Long-Term Family Assistance Recipient; and Qualified Long-Term Unemployment Recipient. (And for the summer months, add “Summer Youth Employee.”)

If I were to go into the actual definitions of each of the items listed above, I would need most of this newspaper space. You should research on your own what each of these are. In many cases, a “qualified” person includes if any member of their family/household are recipients.

So first, the credit. Generally, the WOTC is equal to 40% of the worker’s first-year wages up to $6,000, for a maximum credit of $2,400 per worker. For disabled veterans who are hired, the credit may be available for the first $24,000 of wages, for a maximum credit of $9,600 per worker. A maximum “summertime credit” of $1,200 per worker is available for hiring youths aged 16 or 17 who reside in an empowerment zone or enterprise community. You should know that this credit is set to expire in 2020, but it has been reinstated many times before and there is no expectation that it will not be renewed again.

An employer must file form 8850 “Pre-Screening Notice and Certification Request for the Work Opportunity Credit” with their respective state workforce agency (in Nevada, that is DETR) within 28 days after the eligible worker begins work. Once the proper certification has been obtained, the employer claims the tax credit as a general business credit on Form 3800 with their income tax return. The credit is limited to the amount of the business income tax liability or social security tax that is owed.

Good news! If you are a non-profit entity, you can get the credit too. It is paid to you by filing form 5584-C separately after filing your regular quarterly payroll tax form. The credit goes against the employer share of Social Security Tax.

Have you heard? Prov 14:35 says, “A servant who deals wisely has the king’s favor, but his wrath falls on one who acts shamefully.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.