How To Claim the Tax Credit for Hiring Unemployed Workers in 2023

Employers can take a tax credit called the Work Opportunity Tax Credit (WOTC) of up to $2,400 per employee when they hire someone who has been unemployed for a long time. Under this credit, he is considered long-term unemployed if he has been unemployed for at least 27 consecutive weeks and has received unemployment benefits for some or all of that period.

Here are the steps to claim a tax credit and an example to illustrate each step.

Step 1: Eligible long-term unemployed complete an IRS questionnaire prior to interview

To qualify for this credit, businesses must pre-screen potential candidates.To meet this requirement, candidates must complete IRS Form 8850.

Candidates facing long-term unemployment check the box next to question 7. This indicates that you have been unemployed for at least 27 consecutive weeks and have received unemployment compensation for all or part of that period.

On this same form, your business fills in the information section on page 2 and includes the date the job seeker provided information to you about being a member of the target group.

Scenario example

Step 2: Interview and Hiring Decision

The next step is to interview the candidate and make a hiring decision. If the candidate is suitable for the job and ready to make an offer, the rest of Form 8850 should be completed.

On page 2 you have to enter

• The date you interviewed the job seeker
• Date the applicant was hired
• start date

It is important that the date the applicant provides information on Form 8850 precedes the date the applicant was offered the job.

Scenario example

Rachel liked Justice’s application and called her for an interview. After her interview, Rachel immediately decided to hire Justice. She offered Justice a job, paying her $75,000 and starting the next day. , Rachel has completed the rest of the Form 8850.

Complete Sample IRS Form 8850 2 Pages

Step 3: Apply for Certification

You must apply for WOTC certification through your state workforce agency within 28 days of hiring new workers. You must file IRS Form 8850. ETA Form 9061, the Individual Characterization Form (ICF) for the Work Opportunity Tax Credit. Form 9061 can be completed and signed by either the applicant or the employer.

You will also need to collect supporting documents from the new employee. You can submit any of the following documents:

• Unemployment insurance payroll record
• Unemployment insurance claim record
• ETA Form 9175, Long Term Unemployed Recipient Self-Certification Form

Individuals facing long-term unemployment should:[はい]A box must be checked to indicate that the individual is or has been unemployed for at least 27 consecutive weeks. During that period they received unemployment compensation.

After completing the Form 9061 and attaching the required information, you must mail it to your state workforce agency. In each state, the names of the agencies vary, but they typically offer programs in unemployment training, jobs, careers, and business services, and programs in veteran rehiring.

If you don’t know where your state’s Department of Labor is, the U.S. Department of Labor has a list of everything. WOTC State CoordinatorYou can contact them and ask where to send your application.

Scenario example

After Justice starts a new job, Rachel decides it’s time to apply for certification. She completed Form 9061, Personal Characterization Form (ICF), Work Opportunity Tax Credit, and also collected judicial supplemental documents.

Example of a completed IRS Form 9061

Justice checks the box next to Question 23 on Form 9601 because she was unemployed for over 27 weeks before being hired.

Sample Question 23 of the completed Form 9061

Step 4: Calculate credits for hiring the long-term unemployed

Once certified, you are ready to calculate your credit using IRS Form 5884 Claim it as part of your reported general business credit IRS Form 3800.

For new hires who qualify based on long-term unemployment, enter the qualifying wage amount on line 1(a) or 1(b) of Form 5884 and calculate the allowable credit amount on line 2.

Look at these lines.

• 1(a) Enter the first year eligible wages for employees who worked more than 120 hours but less than 400 hours and multiply this amount by 25% (0.25).
• 1(b) Enter the eligible first year wages of employees who have worked at least 400 hours for you and multiply this amount by 40% (0.40).

As you can see from the calculation above, the more hours an employee works during a tax year, the more credits they can claim.

Scenario example

Rachel calculates credits as follows: IRS Form 5884When hiring an individual facing long-term unemployment, $6,000 of qualifying wages is used to calculate the credit.

2023 WOTC calculation on IRS Form 5884

Step 5: Report your tax credits on your tax return

Credits flow into different forms, depending on the entity’s classification.

Scenario example

Online Rock Stars Corp. is organized as an S-corp and credits are reported on IRS Form 1120-S, Schedule K, line 13g.

WOTC is superseded by IRS Form 1120-S, Schedule K, Line 13g

Frequently Asked Questions (FAQ)

Where can I find more information about employment for individuals facing long-term unemployment?

If you want to connect with talent who have been out of the workforce for some time, you can partner with return-to-work programs such as: iRelaunch again forward pass.

Can I apply electronically?

No, all forms must be submitted by mail and must be signed by you and the applicant.

Can I claim credit for multiple people?

Yes, if you hire multiple individuals facing long-term unemployment or who are members of other targeted groups (such as felons or veterans), you can claim credit for each applicant.

Conclusion

If you are looking for new candidates, remember to give Form 8850 to the applicant along with your application. Hiring individuals facing long-term unemployment not only gives them access to potentially loyal employees, but can also qualify them for tax credits.