4Thought Blog

4thought graphic - blog 2020

Could the Work Opportunity Tax Credit Help Your Construction Company?

Posted by Concannon Miller on Thu, Jun 30, 2022

Find me on:

Could the Work Opportunity Tax Credit Help Your Construction Company?The construction industry has been facing a labor shortage for years. Although there are various ways to tackle the challenge, one approach to keep in mind is expanding your hiring pool to, in part, avail yourself of a potentially valuable tax break: the Work Opportunity Tax Credit (WOTC).

The WOTC is available to employers as an incentive for hiring individuals who receive government assistance and reintroducing them into the workforce.

Depending on the targeted group to which a worker belongs, as well as the wages earned, the maximum credit can range from $2,400 to $9,600 per new hire. So, it's well worth determining whether the tax credit could help your construction company.

Catching Up With the Credit

The WOTC may be claimed by any employer that hires and pays (or incurs) wages to certified individuals from eligible groups that consistently face significant employment barriers. Certification is generally performed by a designated state workforce development agency (typically, a state's Department of Labor). There are 10 targeted groups:

  1. Individuals experiencing long-term unemployment,
  2. Adult residents in areas designated as empowerment zones or rural renewal counties with high levels of poverty and unemployment,
  3. Summer youth employees living in empowerment zones or rural renewal counties,
  4. Individuals who have been referred to an employer following completion of a rehabilitation plan or program,
  5. Those who receive state assistance under part A of title IV of the Social Security Act (IV-A recipients),
  6. Individuals whose families are IV-A recipients,
  7. Recipients of the Supplemental Nutrition Assistance Program (SNAP),
  8. Individuals whose families are SNAP recipients,
  9. U.S. military veterans whose families are SNAP recipients, are unemployment benefit recipients, or have service-related disabilities and are unemployment recipients, and
  10. The formerly incarcerated or those previously convicted of a felony.

One word of warning: You can't claim the tax credit for rehired employees.

Generally, the WOTC is equal to 40% of up to $6,000 of wages paid to employees in their first year of employment who put in at least 400 hours of work during that year. For the wages of certain qualified veterans, the $6,000 cap is boosted to $24,000. A 25% rate applies to wages for employees who perform less than 400 but at least 120 hours of service.

The amount of the credit is limited to your construction company's income tax liability or your share of Social Security taxes. Any unused amount is subject to the carryback and carryforward rules applicable to tax credits.

Concannon Miller blog subscription sign up

Applying for Certification

As mentioned, to claim the WOTC, you must first apply for certification verifying that a new hire is a member of a targeted group. This is done by completing Form 8850, "Pre-Screening Notice and Certification Request for the Work Opportunity Credit," before offering employment.

Both your construction company and the job applicant must fill out the form, which you then need to submit, within 28 calendar days of the new hire's start date, to the designated local agency in the state where the employee will work. The agency might require additional forms to approve certification.

If the new employee meets eligibility requirements for a targeted group, you'll receive certification from your state workforce agency. After certification is secured, you can claim the WOTC as a general business credit against your federal income taxes.

Some applicants might have already acquired precertification from a state workforce agency or another participating agency before beginning their job searches. However, precertification isn't required for you to eventually claim the tax credit.

READ MORE: Construction: 8 Accounting Practices to Boost Your Bottom Line

Finding Job Candidates

To find the talent you need, your best bet is to contact your state workforce agency or U.S. Department of Labor American Job Centers and their partnering agencies, which include:

  • Vocational rehabilitation agencies,
  • City and county social service offices, and
  • The Veterans' Employment and Training Service.

These entities help employers connect with skilled job seekers who are likely members of WOTC targeted groups. American Job Centers also can assist with recruiting, hosting job fairs, conducting skills assessments and providing support to workers transitioning to new jobs.

Keep It In Mind

The WOTC has been extended until Dec. 31, 2025. That makes it an important tax break to keep in mind this year and over the next several when hiring for your construction business.

We can provide further details on the credit and help you claim it in the event you do hire one or more eligible employees from a targeted group. Contact us for personalized assistance.

©  2022

Topics: Construction & Real Estate Development

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

Subscribe for more Timely Tips for Businesses

Recent Posts