A Federal Business Tax Credit for Iowa’s Employers
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain eligible individuals from certain targeted groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.
WOTC reduces an employer’s cost of doing business by decreasing their federal income tax liability between $2,400.00 and $9,600.00 per employee, depending on the target group identified and hours worked during the first year of employment. For employers to earn a WOTC, the new employee must work at least 120 hours during the first year of employment and have not worked previously for the employer. Employers can claim the WOTC on an unlimited number of qualified employees each year.
WOTC applies only to new employees. The new employee must belong to one of the following target groups:
- TANF Recipients: a member of a family receiving Temporary Assistance to Needy Families (TANF). Employee must have received benefits for any 9-month period during the 18-month period ending on the hiring date.
- Qualified Veteran (any of the following):
- A veteran AND a member of a family receiving SNAP for at least 3 months in the last 15 months ending on the hiring date.
- A veteran who is entitled to compensation for a service-connected disability and has a hiring date not more than one year after discharge or release from active duty in the U.S. Armed Forces.
- A veteran who is entitled to compensation for a service-connected disability and has been unemployed for a period or periods totaling at least six months during the one-year period ending on the date of hire.
- A veteran unemployed at least four weeks (whether or not consecutive) or six months or more (whether or not consecutive) in the year prior to being hired.
- Ex-Felons: convicted of a felony or released from prison for a felony within one year of the date of hire.
- Designated Community Resident
- On the date of hiring, an individual who is at least 18 years old and under 40 AND who resides in a Rural Renewal County AND continues to reside at the location after employment.
- Rural Renewal Counties in Iowa are: Adair, Adams, Appanoose, Audubon, Butler, Calhoun, Cass, Cherokee, Clay, Clayton, Emmet, Floyd, Franklin, Fremont, Hancock, Humboldt, Ida, Keokuk, Kossuth, Montgomery, Osceola, Palo Alto, Pocahontas, Poweshiek, Sac, Taylor, Union, Wayne, Winnebago and Worth
- Vocational Rehabilitation Referrals:
- An individual who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services under a State rehabilitation plan OR an Employment Network Plan under the Ticket to Work Program, OR a program carried out under the Department of Veterans Affairs.
- SNAP Recipients: an individual who is 18 to 39 years old AND a member of a family that has received food stamps for the last six months.
- Supplemental Security Income (SSI) Recipients: an individual who received SSI benefits for any month within the last 60 days ending on the hire date.
- Long-term Family Assistance Recipients (LTFA): an individual who is a member of a family that:
- Received TANF payments for at least 18 consecutive months ending on the hiring date OR;
- Received such family assistance for a total of at least 18 months (whether or not consecutive) after August 5, 1997 if the individual is hired within two years after the date that the 18 month total is reached OR;
- Stopped being eligible for assistance after August 5, 1997 due to federal or state law limits and the individual is hired not more than two years after such eligibility for assistance ends.
- Long-term Unemployed Recipient (LTUR): An individual who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during some or all of the unemployment period.
How to Apply
STEP 1: COMPLETE IRS FORM 8850
- IRS Form 8850, page 1
- The applicant must complete, sign and date page 1 of the IRS Form 8850 on or before the day the job is offered.
- IRS Form 8850, page 2
- When the decision to hire is made, the employer must complete page 2 (employer section) of IRS Form 8850.
- The IRS Form 8850 is considered a critical form. The form must be fully completed and submitted to Iowa Workforce Development (IWD) within 28 calendar days after the employee’s start date. Form 8850 submitted after 28 days will be denied.
STEP 2: FILL OUT ETA FORM 9061
- ETA Form 9061 may be completed on behalf of the applicant by the employer or the employer’s authorized representative, or by the applicant. If the applicant is a minor, the parent or guardian must sign the form.
- The applicant sections (boxes 6-23) of ETA Form 9061 must be completed on or before the first day of work.
- The employer will complete the employer sections (boxes 3-5).
- The individual completing the form will sign and date it (boxes 25(a)(b) and 26)
STEP 3: SUBMIT FORMS
- The preferred method for submitting applications is to use Iowa’s online WOTC portal, IowaWORKS.gov. All supporting documentation will be uploaded to the online system.
- Applications may also be submitted by:
- Mail: IowaWORKS Center, WOTC Unit, 1000 E Grand Ave, 50319
- Fax: 515-242-0487
- Secure Email: WOTC.Coordinator@iwd.iowa.gov
- IRS Form 8850 must be submitted or postmarked within 28 calendar days after the employee’s start date. Forms 8850 not submitted within 28 calendar days will be denied by IWD.
STEP 4: FINAL DETERMINATION
- IWD will issue a final determination for each WOTC application.
- If needed, a request for additional information or documentation will be issued (Denial Pending More Information).
- The final determination indicates if the new employee is certified as meeting the eligibility for one of the WOTC target groups.
- If the WOTC application is not able to be verified for eligibility, IWD will issue a denial with an explanation.
WOTC Status Definitions
- Appealed - The denial or certification for this application has been appealed by the employer or third-party agent.
- Certified - Application has been certified. Appeals must be received within one year of the issuance date of the certification.
- Denial Pending More Information - A request for information or documentation has been made to the employer. An application in this status more than 90 days will be denied.
- Denied - Application has been denied. Appeals must be received within one year of the issuance date of the denial.
- Incomplete 8850 - IRS Form 8850 needs to be completed and submitted; the employer or third-party agent needs to contact Iowa Workforce Development for assistance in completing the form. Applications in this status exceeding the 28-day rule will be denied.
- Pending - A request for verification documents has been submitted to another agency or state. An application in this status more than 120 days will be denied.
- Pending 9061 - ETA Form 9061 has not been completed and submitted; the employer or third-party agent needs to contact Iowa Workforce Development for assistance in completing the form.
- Submitted 8850 and 9061 - Application has been submitted to the State and will be processed by a Certification Officer
How to Claim the Credit
FILE FOR THE CREDIT WITH THE IRS
- After receiving a certification from IWD, employers may file for the tax credit with the IRS.
- Generally, an employer elects to take the credit by filing IRS Form 5884, Work Opportunity Credit.
- A tax-exempt organization that hires an employee in the WOTC Veteran target group should use IRS Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
- Employers also must meet requirements for the Minimum Employment Period, which is the number of hours required to worked by the employee – at 120 hours in the first year of employment -- before they can file and qualify for the tax credit.
IRS Form 8850
Instructions for IRS Form 8850
ETA Form 9061
IRS Form 2848 Power of Attorney
Instructions for IRS Form 2848
ETA Form 9175
IRS Form 5884
IRS Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans