Work Opportunity Tax Credit (WOTC) for Employers

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extends the Work Opportunity Tax Credit (WOTC) retroactively for hires from December 31, 2014 to December 31, 2019. This document provides information and interim instructions to help the State Workforce Agencies (SWAs) implement the PATH Act’s legislative provisions. The Employment and Training Administration (ETA) and the Internal Revenue Service (IRS) will be issuing formal guidance soon and updating WOTC forms as needed. The PATH Act amends Section 51(c)(4) of the Internal Revenue Code of 1986. In summary, Title I—“Extenders,” Subtitle B—“Extensions Through 2019,” Section 142, “Extension and Modification of Work Opportunity Tax Credit,” of this Act:

• Retroactively reauthorizes the WOTC program with all its current target groups, without changes or new provisions, for a 5-year period, after December 31, 2014 to December 31, 2019;
• Introduces a new target group, a Qualified Long-term Unemployment Recipient, which is defined as any individual who is certified by the designated local agency as being in a period of unemployment which:
  • is not less than 27 consecutive weeks, and
  • includes a period in which the individual was receiving unemployment compensation under State or Federal law.

Full guidance and definition from USDOL/IRS on this new Long-term Unemployment Recipient (LTU) category is still forthcoming. We will hold all LTU applications until guidance is received by the states.

The Department of Labor is working with the Internal Revenue Service (IRS) to issue reauthorization guidance to the state workforce agencies and the employer community. Employers should continue to submit WOTC applications to state workforce agencies within 28 calendar days after the new hire's start date. For further information, visit the IRS WOTC Website, view ETA's Interim Instructions on the 2014 Reauthorization and 2015 Hiatus, or look for updates on ETA's national WOTC website at www.doleta.gov/WOTC/ under "What's New."

Qualified Wages For New Qualified Long-term Unemployment Recipient Target Group
The 1996 legislative provisions that apply to most adult non-veteran target groups for “qualified wages” and amount of the tax credit employers can claim for new hires certified under those target groups also apply to the new target group employees hired after December 31, 2015. Qualified wages for certified new hires under the new Qualified Long-term Unemployment Recipient target group are also capped at $6,000 dollars, during the first year of employment, for a maximum tax credit of up to $2,400 depending on the number of hours the new hire works (i.e., how they meet the provisions of the Minimum Employment or Retention Period).

Tax Credit Amounts and The Minimum Employment or Retention Period For New Qualified Long-term Unemployment Recipient Target Group.

• For WOTC certified new hires working at least 120 hours, employers can claim 25% of the first year wages paid up to $6,000 for a maximum income tax credit of up to $1,500, or For WOTC certified new hires working 400 hours or more, employers can claim 40% of the first year wages up to $6,000 for a maximum income tax credit of up to $2,400.
• The PATH Act retroactive extension applies to individuals who begin work for an employer [and are certified under any of the existing current target groups] after December 31, 2014 and
• The PATH Act provisions that cover the new target group apply to individuals who begin to work for an employer after December 31, 2015, i.e., on or after January 1, 2016.
• The legislative authority for the Empowerment Zones (EZs) expired on December 31, 2014.

The legislative authority for the Empowerment Zones (EZs) expired on December 31, 2014.