Qualifying Employees
Credit Amount
Hiring Incentive
Certification of a Qualified Employee
Minimum Work Requirement
Reporting Requirement
Qualified Wages
Carrybacks and Carryforwards
Additional Qualifying Employees
Further Details
Source
Effective October 1, 1996, employers will have a new Federal tax incentive, the Work Opportunity Tax Credit (WOTC), to hire youth who reside in empowerment zones (EZ) and Enterprise communities (EC).Qualifying Employees
The employer may take the credit for hiring young EZ/EC residents -- individuals who are ages 18 through 24 (high-risk youth) and individuals 16 and 17 years old who are hired to work between May and September (summer youth employees).
The credit is available whether the EZ/EC youth works inside or outside of the EZ/EC, so long as the princioal residence of the youth is within the EZ/EC.
The credit may not be claimed for wages paid to certain employees related to the employer or any owner of at least 5% of the business.
Credit Amount
The maximum credit amount for high-risk youth is $2,100. The credit is equal to 35% of up to $6,000 in wages paid during the first year of employment. Only first-year wages paid to youth who begin work between October 1, 1996, and September 30, 1997, qualify.
The maximum credit amount for summer youth is 1,050. The credit is equal to 35% of up to $3,000 in wages paid for any 90-day period between May 1 and September 15, 1997.
Hiring Incentive
The credit is only for qualifying employees hired after October 1, 1996. An employer cannot take the credit for wages paid to EZ/EC residents who are hired before that date.
Certification of a Qualified Employee
The employer must receive certification that an employee is a member of a qualified group from the local State Employment Security Agency (SESA) before the credit can be taken. The certification must be obtained from the SESA before an EZ/EC youth begins work for the employer, or the employer must fill out a pre-screening notice before making an offer to the employee, indicating the basis of the employer's belief that the individual is a qualifying employee, and submit this notice to the SESA as part of a written request for certification within 21 days of the date the employee begins work. The pre-screening notice will be available from the SESA or from the IRS.
Minimum Work Requirement
The employer may take the credit for high-risk youth only if the EZ/EC employee works for a minimum of 400 hours or 180 days. If the credit is being taken for summer youth, the minimum work requirement is 120 hours or 20 days.
Reporting Requirement
An employer reports the WOTC on IRS Form 5584. IRS forms are available on the Internet (www.irs.ustreas.gov), by toll free telephone (1-800-829-3676), or by computer and modem (1-703-321-8020 - modem settings N, 8, 1).
Qualified Wages
The credit is calculated on salaries and wages, as defined for Federal Unemployment Tax (FUTA) purposes and certain training and educational expenses paid on behalf of the employee.
An employer must reduce the deduction for wages on his or her tax return by the amount of the WOTC taken for that employee.
Carrybacks and Carryforwards
The amount of general business credits, including the WOTC, which can be claimed in a single year is subject to a limit tied to the employer's taxable income, but the employer is allowed to carry forward or carry back unused amounts under the general business credit tax rules.
Additional Qualifying Employees
The WOTC is also available for five other targeted groups, regardless of whether they are residents of an EZ/EC: an individual who is a member of a family receiving family assistance (AFDC or its successor program), a veteran who is a member of a family receiving family assistance or food stamps, an ex-felon who is a member of an economically disadvantaged family, a vocational rehabilitation referral, or an individual who is at least 18 years old but not yet 25 and is a member of a family receiving assistance under the food stamp program.
Further Details
For additional details about the tax aspects of the WOTC, interested employers should contact their tax advisors or call Robert Wheeler at the Internal Revenue Service at (202) 622-6060 (not a toll-free call).
Source
Internal Revenue Service: Obtain additional IRS forms and tax information via the Internet.
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