Form 8850 Instructions: How to Claim the WOTC
Correctly navigate the requirements for Form 8850 to certify new hires and successfully qualify for the Work Opportunity Tax Credit.
Employers can lower their federal income tax liability with the Work Opportunity Tax Credit (WOTC) by hiring individuals from specific targeted groups. The first step is completing and submitting Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form asks a designated state agency to certify that a new hire is a member of a qualifying group, a prerequisite for claiming the credit on the business’s tax return.
Determining Employee Eligibility for the WOTC
Before filling out Form 8850, an employer must determine if a new hire belongs to a WOTC targeted group. These groups consist of individuals designated as facing barriers to employment, and each category has specific criteria the employee must meet.
WOTC targeted groups include:
- Qualified Veterans, a category with several sub-groups based on factors like receiving SNAP benefits, a service-connected disability, or unemployment duration.
- Qualified Ex-Felons hired within a year of their conviction or release from prison.
- Designated Community Residents living in an Empowerment Zone or Rural Renewal County.
- Vocational Rehabilitation Referrals, who are individuals with disabilities referred by a state or federal agency.
- Recipients of Temporary Assistance for Needy Families (TANF).
- Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits.
- Recipients of Supplemental Security Income (SSI).
- Long-term family assistance recipients.
- Qualified Summer Youth Employees aged 16 or 17 who live in an Empowerment Zone and work for the employer during the summer.
- Long-term unemployed individuals who have been jobless for 27 consecutive weeks or more.
Information and Documentation for Form 8850
Employers must gather specific information for Form 8850, which should be downloaded from the IRS website. The top of the form requires the employer’s name, Employer Identification Number (EIN), and address, plus the applicant’s name, Social Security number, and address. The job applicant must complete the first page on or before the day a job offer is made.
The applicant’s section uses yes-or-no questions to identify their targeted group and must be signed and dated. The employer completes the second page with the employee’s start date, wages, and position offered, then signs and dates it.
Additional documentation must be submitted with Form 8850 to support the request. If the applicant was pre-certified by an agency, submit ETA Form 9062 (Conditional Certification). Otherwise, the employer must submit ETA Form 9061 (Individual Characteristics Form).
Submitting Form 8850
The completed application package must not be sent to the IRS. It must be submitted to the designated State Workforce Agency (SWA) for the state where the employee works. Employers can find the correct SWA on the Department of Labor’s website.
The employer must submit the forms to the SWA no later than the 28th calendar day after the employee’s start date. This 28-day deadline is a firm requirement, and the postmark date is used for mailed submissions.
The SWA will review the application to verify the employee’s eligibility. If the agency confirms the employee’s status, it will issue a formal certification to the employer, which is the document needed to claim the tax credit.
Claiming the Work Opportunity Tax Credit
Receiving certification from the SWA authorizes the employer to claim the WOTC, but the credit is not claimed on Form 8850. Employers must use Form 5884, Work Opportunity Credit, to calculate the credit amount based on the employee’s qualified wages and hours worked.
The amount from Form 5884 is reported on Form 3800, General Business Credit. This consolidated credit is then applied against the employer’s tax liability on their annual income tax return, such as Form 1120 for corporations or Form 1040 for sole proprietors.
Tax-exempt organizations follow a different process. They can only claim the WOTC for hiring qualified veterans and must use Form 5884-C. This credit is claimed against the employer’s share of Social Security taxes instead of income taxes.