Home care agencies can qualify for up to a $9,600 tax credit per eligible caregiver through the Work Opportunity Tax Credit (WOTC) program. Yet, most home care agencies are either not filing for this benefit or are unaware of the program.
Update: ClearCare has recently fully automated the tax credit filing in the ClearCare product.
5 Question & Answer Tips to Claim your tax credits
1) Why should home care agencies have interest in the WOTC program?
There are $60 billion in federal, state, and other employer tax credits available each year. These tax credits were created to help elevate targeted citizens in economically depressed circumstances to a stronger, more stable financial position.
Through these programs, employers are rewarded with a tax credit -- not a deduction -- which means that the full amount is deducted from the taxes you pay. The average tax credit awarded is $1,800 while the maximum benefit tops out at $9,600 per caregiver hire. Across all business types, 15% of employees qualify for some type of a WOTC credit.
The size of the tax credit varies on a number of variables such as: the type of eligibility class, how many hours the employee works, and how much they are paid. An employee must work at least 120 hours to begin earning tax credits for your agency. For most of the targeted groups the maximum credit is calculated at 40% of the first $6,000 that the caregiver earns -- or ~ $2,400.
2) How can I maximize my credits?
Home care agencies shouldn't feel guilty for prioritizing work for caregivers who are eligible for tax credits. After all, that's what the program is all about -- putting these caregivers to work. If you're using home care software you can tag each client as being 'WOTC Certified' so when you're thinking about scheduling a shift you're at least aware that the more they work, the more credit you may earn.
According to Ken Brice of EmployerIncentives.com, of the targeted classes, 9 of the 11 follow a simple formula where the home care agency earns 25% of what the caregiver earns, up to their first 400 hours worked. The caregiver must however work a minimum of 120 hours to qualify. This benefit caps out for most of the targeted classes at around $2,000 with the exception of the Welfare to Work and Veteran classes. These two classes allow your agency to earn 40% of the caregiver's wages when the caregiver works 400 or more hours and caps out at $9,600 per eligible caregiver.
3) Which caregiver hires are most likely to be eligible?
When home care agencies are aware of the targeted criteria and selectively file, approximately 75% of the caregivers will meet at least one of the eligibility criteria. The WOTC rewards companies for hiring from 11 targeted groups. These groups include caregivers who are on food stamps, welfare, state paid disability, unemployed Veterans, and those on the Temporary Assistance for Needy Families, Designated Community Resident, or Supplemental Social Security programs.
The maximum credit is earned if you hire a Veteran who has been unemployed for 6 months who has at least a 10% service connected disability. This benefit caps out at $9,600 per caregiver.
The other high frequency qualification criteria is for caregivers under 40 years old who are on food stamps or have been in the recent past. Caregivers who are also a member of a nuclear family member that is on food stamps also often qualify.
4) How can my home care agency file for the credit?
The caregiver needs to complete two forms before or on the date of hire and your agency needs to submit that paperwork within 28 days of hiring the caregiver. In recent years the IRS has allowed home care agencies to file the paperwork after the 28 days but this has not been approved for 2015. The caregiver needs to complete IRS form 8850 and ETA form 9061. Some agencies complete ETA 9600 which is easier for the caregiver and also authorizes a 3rd party to file for the benefit on your behalf. You will then need to complete the employer parts of the form and mail to the correct WOTC state address. See the resources link below for a state by state list of where to mail the forms.
5) What happens after the credit is filed?
You will receive a written notice with one of three statements:
- Certification - this statement verifies that the caregiver does qualify for one of the targeted classes
- Denial - usually a reason is provided
- Request for more information - either missing or conflicting information was found in the application
Note that state turnaround times can vary widely. For example, home care agencies in Nevada are experiencing a 3 year delay but most states turn these around in 2-3 months. For best practice, an agency should file for these credits in real-time as each caregiver is hired.
Also notable is that the number of hours worked is based on the caregivers hire anniversary, not the fiscal or calendar year. To meet the 120 hour minimum number of hours worked, you can file for a caregiver who worked 60 hours in 2014 and 60 hours in 2015 as long as those hours were worked within the 12 month calendar year from the date the caregiver was hired.
Helpful Links & Resources:
- State by State Workforce Agency list - use this link to find the address to mail the paperwork to within 28 days of hire
- Form 8850 & 9061
- WOTC Application process by state
- ClearCare Employment Screening with CareGuard & Auto WOTC Filing
- A big thank you to Ken Brice of www.EmployerIncentives.com for contributing to this article.