Hiring people from targeted categories and employing them for at least 120 hours may qualify your transportation company for the Work Opportunity Tax Credit (WOTC). Finding good drivers is a constant challenge for transportation companies. This program is designed to increase employment opportunities for individuals who typically experience certain barriers to employment. The WOTC program was renewed for five years, retroactively from January 1, 2015 to December 31, 2019.
Any first-time hire may qualify your transportation company for this credit. The new hire must fall into one of the following target groups listed below:
- with a service-connected disability who have been unemployed for at least six months in the past year.
- with a service-connected disability and hired within one year of their discharge/release date.
- who have been employed for at least six months.
- receiving Supplemental Nutrition Assistance Program (SNAP) benefits.
- who have been unemployed for at least four weeks, but less than six months.
- Long-Term Unemployed
- Food Stamp Recipient
- Summer Youth
- TANF Recipients
- Designated Community Residents
- Vocational Rehabilitation Referral
- Supplemental Security Income Recipients
Depending on which target group the individual belongs to, the maximum credit per new hire may range from $1,200 to $9,600.
WOTC Program Details
Your HR professional will need to complete a screening of a potential employee and instruct them to complete the WOTC survey using one of the following methods:
- Call Center Survey
- Online Survey
- Paper Questionnaire
If it is determined they qualify for the WOTC, the employee must complete IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before their start date. This form MUST be postmarked within 28 days of the start date and sent to the state Department of Labor for Certification. This form is used to make a written request to the state workforce agency to certify an individual as a member of a targeted group.
The credit is equal to a percentage of the eligible employee’s wage and must work at least 120 hours to receive credit. The average credit per qualified employee is $1,200 to $1,500, with the number of qualified employees dependent on the job type, location and wages. Most transportation companies may see anywhere from 10-30 percent of their new hires qualify.
Requirements to be Eligible for WOTC
The credit is limited to the amount of the business income tax liability. When your transportation company applies the credit against your income tax liability, the normal carry-back and carry-forward rules apply. Any unused credits may be carried back one year and carried forward for 20 years.
Reporting the credit requires a wage add back adjustment in the amount of the current year credit generated and may affect calculations of other federal and possibly state tax credits, such as Federal Empowerment Zone Employment Credit (reduces allowable qualified wages limitation – maximum credit goes from $3,000 to $1,800) and the Federal Indian Employment Credit (not allowed in 1st year if WOTC claimed).
Why should your transportation company participate?
Below are benefits of participating in the WOTC Program:
- Reduce your operating cost.
- Increase revenue by reducing certain expenses.
- Provide a financial benefit by reducing federal, state, and local tax liability.
- Further allow HR and Tax Departments to become revenue generating areas.
- Benefits received may be used to offset effect of cutbacks and/or allow funding for other special projects.
- Participation in incentive programs may play a significant role in a company’s expansion plans.
Transportation has been a key practice area of Smith Schafer’s for more than 45 years. We have qualified professionals to assist you with identifying and claiming these credits. For more information on tax strategies that may benefit your business, contact the Smith Schafer Transportation Team and schedule a FREE 30 minute consultation. We look forward to speaking with you soon.