As we reported in late December, Congress passed a tax credit extender bill, which made many expired tax provisions retroactively available for 2014. One of the provisions allows employers to claim tax credits for hiring disadvantaged workers in certain categories.
You can claim a Work Opportunity Tax Credit (WOTC) for 2014 if you hired a qualified individual from one of the eight specified categories. Normally, the employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency within 28 days after the target group member began work.
Generally, the credit is equal to 25% of qualified first-year wages for a worker employed at least 120 hours and 40% for someone who is employed 400 hours or more. The maximum credit is $2,400 per qualified worker, or 40% of $6,000, for workers in most of the target groups.
The provision for hiring qualified veterans was also extended for 2014. This credit reaches as high as $9,600 for hiring a qualified veteran or $6,240 for vets hired by tax-exempt organizations. The exact amount of the credit depends on several factors — including the length of the veteran’s unemployment before hire, the number of hours the veteran works, and the veteran’s first-year wages.
Keep in mind that the tax extender bill only applies to 2014 — Congress did not extend the provision through 2015, so it’s currently expired. Congress may again retroactively extend the credit again this year, or they may not. It’s a good idea to go ahead and file Form 8850 for those employees you hire who may qualify if the provision is extended for 2015.