Work Opportunity Tax Credit Can Add to the Bottom Line

Community association management companies (and their clients) have a valuable tool available for growing their staffs and reducing their tax bills at the same time — the Work Opportunity Tax Credit (WOTC). And they may not even be aware of it.

“The credit is very overlooked,” says Jamie Dokovna, a shareholder in the Florida law firm Becker & Poliakoff who practices employment law and works in the community association arena.

“I can’t think of any managers or associations that receive it. I suspect it’s largely because they don’t know about it. It’s like free money, and they’re not taking advantage of it.”

Understanding the WOTC Potential

“There’s a big shortage of managers right now,” says Ken Bertolucci, president of NS Management in Skokie, Ill. “Part of it is that the business is booming; another is the lack of young people entering community association management.”

The WOTC could help managers and associations fill those gaps. It’s designed to incentivize employers to hire individuals who have historically faced barriers to employment, including:

  • the formerly incarcerated or those previously convicted of a felony;
  • recipients of Temporary Assistance for Needy Families (TANF);
  • veterans;
  • residents in areas designated as empowerment zones or rural renewal counties;
  • individuals with disabilities who have completed a vocational rehabilitation plan or program;
  • individuals whose families are recipients of supplemental nutrition assistance (otherwise known as food stamps or SNAP) or TANF;
  • recipients of disability benefits; and
  • individuals who have been unemployed for at least 27 weeks.

Tax-exempt employers can claim the WOTC only against payroll taxes and only for wages paid to qualified veterans. While associations generally are nonprofit, though, they usually don’t qualify for tax-exempt status unless they operate for the good of the public at large, not just their members — and they have to file a request with the IRS.

Employers that hire from the so-called “target groups” can claim a tax credit that ranges from $2,400 up to a whopping $9,600 per eligible employee, depending on the targeted group and the qualified wages paid to the new hire. Generally, the credit is 40 percent of qualified wages for individuals who work at least 400 hours in their first year of employment. No cap applies to the number of new employees who can earn an employer credits.

“The financial aspect is very compelling,” Dokovna says. “In conjunction with other potential tax credits, there’s a big savings to hiring people you might not otherwise hire or think would be a good fit. If you give them an opportunity, they can rise to the occasion.

“If there’s a concern, an employer can get a fidelity bond.” The Federal Bonding Program gives employers free access to $5,000 to $25,000 in fidelity bond coverage for certain employees’ first six months on the job.

According to Dokovna, employers across industries are now considering candidates they’ve reflexively rejected in the past. For example, many employers are moving away from requiring college degrees. “They know the jobs they’re looking to fill don’t really require it, and that requirement has kept people out of these better-paying jobs.”

Hiring from disadvantaged groups could provide a competitive advantage, too. “Businesses are trying to differentiate themselves by doing good things,” Dokovna says. “I know companies that use the WOTC as a selling point from a marketing perspective.” Associations with socially conscious boards may be especially drawn to such managers.

Finding Eligible Employees

So how do you know if a candidate falls in a targeted group? Soliciting the necessary information seems like a dicey proposition.

“I wouldn’t recommend asking in interviews if someone receives SNAP benefits, for example,” Dokovna says. “But you can partner with local job centers or state workforce agencies that place qualified candidates from the targeted groups. My advice to employer clients is that this is a resource they should look into.”

American Job Centers can help employers recruit employees, host job fairs, conduct skills assessments, and provide support to workers transitioning to new positions. Some applicants may be pre-certified as part of a targeted group. While helpful, pre-certification isn’t necessary for an employer to hire or claim the WOTC.

Claiming the Credit

The IRS does have some strict requirements for employers claiming the WOTC. If the new employee isn’t pre-certified, you’ll need to obtain certification from the state workforce agency that he or she is a member of a targeted group on or before the first day or work.

Alternatively, you can complete a pre-screening notice (IRS Form 8850, “Pre-Screening Notice and Certification Request for Work Opportunity Credit”) on or before the day employment is offered. Submit the notice to the state workforce agency to request certification within 28 days after the employee begins work. New hires must work at least 120 hours before you can claim the WOTC.

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