Home Care Agencies can receive thousands of dollars through the Work Opportunity Tax Credit program (WOTC). While the policies can be confusing, the benefit to agencies and underemployed caregivers is enormous. Use this guide as a resource to understand more about WOTC and start putting more money back into your business.
Everything you need to know about WOTC
Here's where we got you covered:
- WOTC Hiring Date Extensions
- What is WOTC?
- Caregiver Qualifications And Benefit Amounts
- Is WOTC Legal?
- Common Questions From Home Care Agencies
- ClearCare Handles WOTC Easily For You
WOTC Hiring Date Extensions
On December 18th, 2016, the WOTC program was extended again to allow certain submissions up until 2020. The government still requires submitting for the WOTC within 28 days of a new hire but allows retroactive submission in some cases. More information can be found at the official IRS website.
This is fantastic news for home care agencies that qualify for the credit but did not file in time. Read more to learn about the WOTC program and how ClearCare can help your agency get the most of your situation.
What is the Work Opportunity Tax Credit (WOTC)?
Employers can claim a federal income tax on their Form 1120, which is the annual income tax return that’s filed, for hiring individuals with barriers to the workforce.
- Reduce your tax liability.
- Reduce effective tax rate.
- Save your company hard dollars.
- Hire employees who need help finding work
What this program does is it screens for people who may be returning from service and need employment, individuals who may be disabled and need assistance and might need a little extra time and training, or individuals that for whatever reason have found themselves out of work for a while and needing help.
If an employer hires somebody that comes from one of those situations, the federal government will give them a tax credit. It’s a dollar for dollar credit. It’s one of the few areas to where your company can save money below the line.
Oftentimes the amount of savings generated by participating in this program covers the cost of the background checks to screen for this tax credit.
Home Care Association of America held a topic that they held on the WOTC. Where they went in and looked at hundreds of home care agencies and determined that about 15% of caregivers will qualify. Now, some agencies are above that, but actually they reported many agencies, particularly health care, typically tends to find more employees who are eligible for the WOTC program.
The Forms Involved
Employees must complete a Form 8850. That’s an IRS form to screen applicants or new hires, depending on when you want to ask the question, about whatever their circumstance may be. Again, this is a federally issued form.
Once the candidate completes that form, then the form needs to be submitted to what’s called a state workforce agency. Depending on where the employee will be working will determine which the state the forms need to be provided to within 28 calendar days of hire.
Something else to make you aware is that as these programs are renewed, the forms can change. For example, in March of 2015, the IRS issued Form 8850.
With ClearCare, your forms would be updated almost immediately. That way, you’re sure that there’s no lapse in any kind of potential for capturing credits and that all the forms being used are the most current versions.
Unfortunately, the policies for WOTC have been difficult to navigate throughout the years. Your choices are either to stay up to date by actively monitoring updates or let our dedicated home care employment screening software take care of it for you.
How critical is it for that caregiver to complete that form at or before that time of hire?
It’s crucial. The IRS or the state workforce agencies will not accept a form after 28 calendar days of hire. If you hire an eligible employee and did not submit that form in a timely manner, then that credit is lost.
Caregiver Qualifications And Benefit Amounts
All of these target groups must be a new hire within 28 days! A caregiver can qualify for multiple target groups and apply for the one with the higher maximum benefit. Only one category may be claimed though.
Rehires are not considered new hires and do not qualify for any target group. If a potential hiree is related to the employer, they do not qualify even if they meet the criteria.
The dollar for dollar tax credit is only counted through direct payments, from the employer to the qualified caregiver, in which the wages are taxed through Federal Unemployment Tax Act (FUTA).
Once they are qualified and you determine that an individual is eligible for WOTC, there is a work requirement. An individual must work a minimum of 120 hours to qualify for this credit. You can hire an employee who would qualify, if they only work for you 100 hours, that credit is forfeited.
However, once they hit the 120 hour mark (which ClearCare monitors, identifies, and notifies you when that has occurred), then that individual once you’ve been certified, generates a 20% credit of the wages paid to that individual.
Then, as they continue to work for you and achieve the 400 hour benchmark, your credit shifts from the 20% up to a 40% credit.
There is one exception: Long Term TANF
For the long-term Temporary Assistance for Needy Families (TANF) target group only, the credit rate is slightly different.
For the first year, the employer may claim a tax credit of 40%, up to the maximum benefit, if the caregiver works at least 400 hours.
For the second year, the employer may claim a tax credit of 50%, up to the maximum benefit, if the caregiver works at least 400 hours.
Pay close attention to the hours here, the 400 hour mark must be reached for these rates. Also, the employer still cannot exceed the maximum benefit.
Unfortunately, the government doesn't allow you to keep endlessly earning tax credits. So no matter what effective rate you are at and how many hours you give to your caregiver, these are the maximum amounts. Remember, that you can only claim one category, so if your caregiver qualifies for Ex-felon and Service-Connected Disability Veteran (an unlikely combo), obviously choose the veteran position!
Now let's break it down by each target group.
- During the 15-month period ending on the hiring date, a veteran, who is a member of a family, must have received SNAP benefits (food stamps) for at least 3 months
- Disabled veteran entitled to compensation for a service-connected disability hired within 1 year of release from active duty or discharge OR unemployed for at least a 6 month period in the same year ending on the hiring date
- A veteran who has been unemployed for minimum 4 weeks in the year ending on the hiring date OR At least 6 months in the year ending on the hiring date (to qualify for greater benefit)
Who is Considered A Veteran?
- Served on active duty (not including training) in the U.S. Armed Forces for more than 180 days, OR have been discharged or released from active duty for a service-connected disability;
- Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.
Long-Term Temporary Assistance for Needy Families (TANF) Recipient
A member of a family that meets one of the following circumstances:
- Has received TANF benefits for at least 18 consecutive months ending on the hiring date
- Has received TANF benefits for at least 18 consecutive or nonconsecutive months after August 5, 1997, AND has a hiring date that is not more than 2 years after the end of the earliest 18-month period after August 5, 1997
- Has stopped being eligible for TANF payments during the past 2 years, because a Federal or state law limited the maximum time those payments could be made
Short-Term TANF Recipient
The individual is a member of a family that received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.
Supplemental Nutrition Assistance Program (Food Stamp) Recipient
Individual must meet these qualifications:
- 18 to 39 years old
- A member of a family that received SNAP benefits (food stamps) for the 6 months ending on the hiring date OR at least 3 of the 5 months ending on the hiring date
Designated Community Resident (DCR)
Individual must meet these qualifications:
- Is age 18 to 39 years old
- Resides within Rural Renewal Countie (RRC) OR Empowerment Zone (EZ)
Vocational Rehabilitation (VR) Referred Individual
If the individual with a disability has completed, or is completing, rehabilitative services provided by:
- A state-certified agency
- An Employment Network under the Ticket to Work program
- The U.S. Department of Veteran Affairs (VA)
Individual must meet these qualifications:
- Has been convicted of a felony
- Has a hiring date that is not more than 1 year after the conviction or release from prison
Supplemental Security Income (SSI) Recipient
The individual is a recipient of SSI benefits for any month that ends during the 60-day period ending on the hire date.
Summer Youth Employee
The individual must meet these qualifications:
- Is a 16 or 17 year old youth,
- Works for the employer between May 1 and September 15
- Resides in an Empowerment Zone (EZ)
Is WOTC legal?
You might find yourself asking “Is it really okay that I ask this at the accept of the application? Can I make hiring, can I not maybe necessarily make hiring decisions, but can I prioritize not only selecting which caregiver to hire, but also how many hours to give them, based on their qualification criteria?”
This is the intent of this program: Given two identical candidates and if one qualifies for the program and one does not, the government, with this program, is hoping and wanting employers to hire the individual that is WOTC eligible.
It is not looked at as discriminatory. It’s actually supporting the government, their initiative, because from their perspective you’re taking an individual who may be on the federal payroll in some regard and you’re putting them to work. You’re assisting them in transitioning from not having a job or from having some kind of supplemental assistance to getting off of that assistance and actually improving their skills, improving self-esteem, and becoming a more contributing member of the workforce.
Ethics of WOTC
Really, it’s a win-win for everybody from the social perspective, as we’ve also found that the employees hired under this program tend to have a greater tenure. They excel in their positions, and move on, and have been very, very happy and successful in the world that they’ve been able to be hired into because of these programs. It’s a win for the employer with the tax credit and it’s a win for the employee because they develop more skills and build their self-esteem as a result of earning gainful employment.
Common Questions from Home Care Agencies
What’s the deal with 120 hours vs. 400 hours?
If a caregiver that you hire meets one of the qualifying criteria and you have had them complete the form, and you’ve submitted the form within the 28 days of hire, that will give you a binary yes/no answer of if they meet one of the qualifying categories.
However, the amount of the tax credit is based on the number of hours worked. The minimum number of hours required to start receiving some of that benefit is 120 hours. Anywhere between 120 hours and 399 hours worked, typically you’re going to receive 20% of that caregiver’s wage in the form of a tax credit up to the maximum benefit.
The 400 hours refers to, that’s kind of a bonus bonus category, if you will, that’s the federal government’s way of saying, “Hey, not only do I want you to hire these individuals and put them to work, but I want you to give them meaningful employment with more hours.” There is an incentive in place where if you put that caregiver to work for 400 or more hours, the incentive goes up from 25% to 40% of their wage, up to the maximum benefit.
What does TANF stand for?
Temporary Assistance For Needy Families is another way to describe welfare. The name of the welfare program recently changed to TANF.
When do the employees need to complete the minimum number of hours?
This is a 2 year program, so it’s over the course of 2 years from the date of hire of the employee. If you have an employee that was hired, let’s say July 15, then the start date on their 2 year term begins July 15. If they work 100 hours in that first year, you would need see them on a report because the haven’t met that 120 hour benchmark. If it takes until the second year to hit that 120 and even above up to that 400 hour mark, then they would qualify for the credit.
How much do I know I’m going to save on my taxes, how much can I earn, and how all is that calculated?
Remember the individual has to work a minimum of 120 hours. Between the 120 to 399 hours there is a 25% credit of the wages.
Once an employee hits that 400 hour benchmark then they bump up to that 40% credit of the wages paid to them, up until they hit the maximum benefit based on their category. If you were to hire an unemployed veteran with a service connected disability, the maximum credit available for that category is $9,600.
Let’s look at a specific case as an example.
You screen the individual, you have them send in the forms within the 28 day period. They receive the certificate from the WOTC, the state workforce agency. You’re paying this individual within on average $12 an hour. Once they hit the 400 hour benchmark, then that means the tax credit to you is $1,920 (40% of 12 x 400).
If you continue to retain them and they work 2,000 hours, then they reach the benefit, the maximum benefit of $9,600 in tax credit for you to claim on your 1120 when you file your annual income tax return.
What can we expect after that submission takes place?
The state takes somewhere between 3 to 6 months (depending on which state) to go through this information and issue a certificate. This is the best case scenario.
Once that WOTC certificate is issued by a workforce agency, then that certifies that individual as qualifying for WOTC, for the WOTC credit. Again, it’s a 2 year credit so as long as that person is retained for 2 years, not a full 2 years, but you have up to 2 years to claim that full credit.
Another thing that could happen, the agency could look at the information and issue a denial letter stating that, “Sorry, although the caregiver indicated that they qualified, the state did some investigation and found that they do not qualify.”
It’s important to not throw in the towel after getting a denial letter. Sometimes you can find the issue and have it looked over again so that it is accepted.
The other scenario, maybe that we would receive what’s called a needs letter from the state. They might want a copy of a DD 214 for a qualified veteran. Or a resident of a designated community, they may want a copy of their driver's license. These must be sent to the state.
Remember if you have ClearCare, the service is built into the program, meaning you don’t have to worry about this stuff. We will handle the back and forth to make sure you get the certification. Check out the WOTC integration in the ClearCare software.
Can we still submit for 2014? What about in the future?
No, the cutoff date for 2014 employees was April, 30 2015.
Again, we’re hoping to see that come true and it is anticipated based on what we’re hearing on Capitol Hill. It will be renewed before the year end and that it will be permanent.
What’s the cost to apply?
It’s free if your agency just does this on your own. You file the paperwork, you go through the process. Remember, you’re going to have to file for the federal WOTC program and individually for any other state level program.
You’ll have to file at the federal, local level, and submit that paperwork in manually and do the manual calculations of how much the credit is eligible for with your payroll company.
You can do that, a lot of time, effort, and it frankly it’s the reason why that cumbersome process is why less than 10% of home care agencies are even implementing the program today because there’s just a lot of steps and a lot of paperwork that’s involved.
Can Nonprofits apply?
Yes. Nonprofits would be able to claim this credit against their payroll tax liability. The WOTC credit can be applied against that liability, since a nonprofit does not have federal income tax liability.
Can Current Employees Apply?
This is a new hire program. However, you could screen for somebody that was hired within the past 3 weeks. Again, the requirement by the government is to submit that completed 8850 within 28 days of hire, so it eliminates the potential to go back in what we would call a retro project.
Does the Form 8850 need to be completed as part of the application process or does it need to come after?
It can absolutely be completed as part of the application process. In fact, we encourage it in the application versus onboarding.
How do I find out where the Designated Communities are in my area?
What is the age limit for summer youth workers, and can it be a high school student?
It absolutely can. Summer youth is an individual that is either 16 or 17 years old and works for an employer between May 1 and September 15 and lives within an Empowerment Zone.
Per an employee, what if that employee only works 120 hours within that 2 year period but they end up leaving after a year. Can we still recognize the tax credits for that employee from the time that they were employed?
Yes. As long as they meet that 120 hour minimum requirement, then yes, they do not need to be retained for a full 2 years. The 2 year window is the window in which they can achieve the maximum value of their category. You might find an individual, so for their example in that instance they worked their 120 hours and then that’s it. They would qualify for that credit up to 120 hours. If you have an individual, let’s say that meets, they max out on their credit within 6 months but you retain them for 2 years. After that 6 month mark, that’s your maximum credit value so it works both ways.
Can the minimum and maximum hour timeframe (120 to 400) can be reached at any point in the entire 2 years from the initial start date?
Yes. The entire period.
Can a single caregiver earn an agency tax credits in more than one category?
No. What they would do is evaluate the categories in which the caregiver would qualify. Let’s say that you have a caregiver that would qualify as an unemployed veteran with the maximum value of $9,600 and they also qualify as a designated community resident, which has the maximum value of $2,400.
Looking at the 2 categories in which they qualify for, ClearCare would automatically file for the greater value. We would select that they would qualify under the $9,600 category of the unemployed veteran. There’s only one category that an employee or caregiver could qualify for credit, but ClearCare looks at which category they may qualify for and we always select the highest value when we’re filing for a certificate.
We also look at if that caregiver switches categories. If all of a sudden they bump up into that veteran who is unemployed for more than 6 months, and they jump up to a credit on the bubble, that’s sort of when you have that team on your side, all you have to do is submit that paperwork at that point. We’re going to take care of making sure you not only get the credit, but that you get the best category, but you get the maximum benefits.
What if you have a person who used to be an employee and then comes back to work?
Unfortunately, any rehire will not qualify for a WOTC credit, so it would have to be a brand new employee. Regardless of how long it’s been since they worked for you.
Is the WOTC tax credit a refundable tax credit or nonrefundable tax credit?
It is a nonrefundable, but it has a 20 year carry forward. If you have a huge amount of credit and it eats up your entire liability for the year, then that credit would carry forward to the next year’s liability, and it can be applied for up to 20 years going forward.
It also has a 1 year carry back, so you could amend your prior year return and that would be refunded back to you. The 20 year carry forward would apply for most situations.
What is the turnaround time to determine eligibility?
The standard is 3 to 6 months but you may not hear back from the state by the time that you complete your taxes. That’s why that 20 year carry forward is very generous, but it also will help you to make sure that if you file that hey, maybe if those caregivers that make it on this year so they’ll be eligible next year for your taxes.
There are states like Nevada that right now have like a 4 or a 5 year turnaround period. That means you will need at least a multi-year carry forward period. They’re trying to clean up some of this in some states. That is not typical. We just are aware that in a few states, particularly Nevada kind of sticks out, but that carry forward will be very helpful.
Something else to keep in mind is that the credit can be claimed when the certificate is received. Let’s say that you hired somebody, let’s say that you had been participating in the program and a certificate from a 2013 hire doesn’t come through until 2015. You can claim that credit in 2015 for the wages paid in 2013 because the government recognizes that you didn’t receive that certificate until 2015. They don’t want an employer to go back and keep amending because again, the agencies are going to be issuing certificates randomly throughout the year. You’re going to have a large influx of certificates over time, and so you just claim the credit as you receive the certificate. It eliminates the need to go back and amend anything.
For the agencies who are using ClearCare today, since this tax credit program is automated, how is the form signed by an employee if they are submitting electronically?
We do have a full online process with screening for eligibility. There is a screen where the caregiver reviews the information that they have provided and then they check a box and type in their name with the date. That becomes the electronic signature of that caregiver. From the government perspective, once they click Submit, ClearCare time stamps that signature and provides that on the 8850 when we submit the form. It’s actually an electronic signature captured when the caregiver completes the screening online and enters in their name with the date.
Is it 28 calendar days?
Yes. 28 calendar days from the date of hire.
Knowing that caregivers work for multiple agencies, what if the caregivers works for several agencies? Who gets the credit?
The agency that files the form correctly. In essence, if they’re all different agencies and the caregiver qualifies for a category for each agency, then all agencies would be able to claim the credit.
Does overtime get looked at any differently? Does it affect the 25 and 40% of their wage, or is it based on their base wage only?
The overtime hours would still be counted as regular hours, and the wages associated with that would increase the amount of the credit amount. It would all be looked at as regular hours. From an HR perspective and how you’re calculating the pay, they change; from a WOTC tax credit perspective there is no difference, they’re lumped into one bucket.
ClearCare Easily Handles WOTC For You
- Less Hassle - Professional Support to monitor confusing legislation
- Save Time - 2 Minutes vs. Hours On Your Own
- Free Software - Tax Credit usually covers the cost of software.
ClearCare provides the smoothest experience possible when applying for WOTC. The process is so simple, your job is just to make sure each potential caregiver fills out an electronic form before they are hired.
We have partnered with GIS to let you know if they qualify, track their hours for you in relation to the credit and then give you the information so you maximize your benefits when you file your taxes. You send the application and we take the hard work on our end.
Just like the Aid & Attendance Benefit integration, this service is provided at no extra cost with the ClearCare platform. ClearCare charges are purely based on performance so you can submit as many caregivers as you want and not worry about random expenses.