Wednesday, June 24, 2009

Update on the Work Opportunity Credit (Form 8850)

  • Form 8850 Instructions to qualify for credit
  • .

  • Publication 954 on the Work Opportunity Credit (uses Form 5884)

  • Form 5884 to take credit

  • The Internal Revenue Service has just provided guidance on an expanded Work Opportunity Credit for employers. Form 8850, the form which qualifies employers for the credit, should be filed with the appropriate state workplace agency (SWA) instead of the IRS (exception: if ONLY Hurricane Katrina-affected employees qualify; the employer need not submit Form 8850 but must maintain satisfactory documentation of the employee's qualifications). Changes for 2009: Hurricane Katrina status is continued to August 2009 (four years of date of Katrina landfall), new categories have been added for military veterans which have received unemployment compensation and "disconnected youth" (a summarized definition would be a 16-24 year old who does not have a diploma and has been out of school and out of work of at least minimum wage pay for at least six months--more complete definitions are available in the 8850 instructions linked above). Qualifying groups include people eligible for Part IV-A of Social Security, qualified military, qualified ex-felon, 18-39 year old resident of an Empowerment Zone, Renewal Community or Rural Renewal County (defined at length on pages three and four of the 8850 instructions and probably includes 1/3 to 1/2 of the country), referral of vocational rehabilitation (generally a disabled employee), summer youth employee, SNAP (formerly called food stamps) recipient, long-term family assistance recipient, Hurricane Katrina employee, unemployed veteran (this adds unemployment compensation recipient to the food stamp recipient or disabled status included in qualified military) and disconnected youth. The credit generally is 40% of wages up to $6,000 per first year employee if the employee worked at least 400 hours, 25% of wages up to $6,000 if the employee worked 120-399 hours with maximum wages limited to $3,000 if the employee qualifies solely as a summer youth employee; there are also opportunities for a 50% credit of certain second-year wages if the employee qualifies as a long-term family assistance recipient.

    The Work Opportunity Credit, while perhaps not perfect (it does add to complexity, after all) is, in my opinion, a relatively good tax incentive. As a tax incentive, it can be adjusted or eliminated more quickly than direct spending, the incentive does provide employers a reason to hire people that might otherwise have difficulty being gainfully employed and the empowerment and renewal zones in many cases (such as the Mississippi Delta and the Alabama Black Belt) are areas of dreadful poverty and despair which can use whatever help they can get in providing employment and business activity (and corresponding tax revenue)toward covering the costs of needed social services.


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