Finding and retaining good employees is a challenge many businesses face. We can agree that incentives like tax credits help attract diverse and qualified candidates.
The Work Opportunity Tax Credit can reduce an employer's federal tax liability by thousands of dollars for hiring individuals from certain targeted groups. Completing Form 8850 is the critical first step to qualify.
This guide will walk through everything you need to know about Form 8850. You'll learn about eligibility requirements, how to properly complete each section, deadlines for submission, and best practices to maximize your credit.
Introduction to Form 8850 and the Work Opportunity Tax Credit
Form 8850 is a pre-screening form used by employers to identify new hires who may qualify for the Work Opportunity Tax Credit (WOTC). This tax credit offers incentives for employers to hire individuals from certain target groups, such as veterans or those receiving government assistance.
Completing Form 8850 is the first step in the WOTC application process. It allows employers to gather information to determine if a new employee qualifies under one of the WOTC target groups. If the employee is certified as eligible, the employer can claim the WOTC by filing Form 5884.
Recently, the IRS released Notice 2021-43 and Revenue Procedure 2021-18 which expanded the WOTC by adding more target groups. This makes the credit available to more employers hiring qualifying individuals.
Understanding the Work Opportunity Tax Credit (WOTC)
The WOTC is a federal tax credit that reduces an employer's federal income tax liability. It is intended to incentivize employers to hire individuals from certain target groups who often face barriers to employment. These groups include veterans, ex-felons, those receiving government assistance programs, and those with disabilities.
The amount of the tax credit varies based on the new hire's target group, hours worked in the first year, and the employer's income tax liability. It can reduce an employer's federal tax liability by as much as $9,600 per qualifying new hire.
Overview of IRS Form 8850: Pre-Screening for the WOTC
Form 8850, also called the Individual Characteristics Form, is completed by both the job applicant and the employer. It is used to capture information to identify if the applicant meets any of the WOTC target group criteria.
If the applicant is determined to be eligible, the form serves as proof that the new hire meets the minimum qualifications for the employer to claim the tax credit. That's why Form 8850 is often referred to as the pre-screening form for the WOTC.
After completing Form 8850, the employer then files it with their state workforce agency. If the applicant is certified as eligible, the employer can claim the credit on their federal tax return using Form 5884.
Eligibility Criteria for WOTC Target Groups
An employee must meet certain criteria to qualify under one of the WOTC target groups. Some of the most common groups include:
- Veterans: Includes veterans who received food stamps or were unemployed for a period prior to being hired. Recent updates expanded eligibility to those serving over 180 days.
- Ex-felons: Includes ex-felons hired within 1 year of conviction or release from prison.
- Long-term unemployment recipients: Includes those receiving unemployment benefits for 27 weeks or more prior to being hired.
- SSI recipients: Includes those receiving Supplemental Security Income benefits.
Notice 2021-43 added more groups like formerly homeless veterans, Section 8 housing tenants, and those receiving Pell grants. Employers use Form 8850 to identify which target group an applicant belongs to.
Recent Updates: Notice 2021-43 and Revenue Procedure 2021-18
Recent IRS updates have expanded the WOTC, making more employers eligible for larger credits. Key changes include:
- Adding more target groups like formerly homeless veterans and Section 8 housing tenants
- Increasing the maximum credit amount to $9,600 per employee
- Making certain small businesses eligible for the credit for the first time
These updates allow more employers to claim the WOTC, especially when hiring applicants from the newly added target groups. Employers will still need to complete Form 8850 to identify eligible new hires.
How do I complete a WOTC screening?
To complete a WOTC screening, follow these key steps:
Have applicants fill out Form 8850
- Have applicants complete the two-page questionnaire on Form 8850 on or before the job offer date. This screens them to see if they qualify under one of the WOTC target groups.
- The form collects information on the applicant's demographic background related to target groups like veterans, SNAP recipients, ex-felons, and more.
Submit Form 8850 with ETA forms
- Along with Form 8850, submit either ETA Form 9061 or ETA Form 9062 to the State Workforce Agency (SWA).
- These forms authorize the disclosure of information about the applicant's target group status.
Submit within 28 days
- You must submit the completed forms within 28 calendar days of the eligible new hire's start work date.
- Missing this deadline will disqualify the employee for WOTC screening.
Following these steps ensures you complete WOTC screening properly so your business can claim the Work Opportunity Tax Credit for eligible hires. Let the SWA determine target group eligibility based on the questionnaire responses.
What is form 8850 pre screening notice?
Form 8850 is an IRS form used by employers to pre-screen potential new hires to determine if they qualify for the Work Opportunity Tax Credit (WOTC). This tax credit provides an incentive for employers to hire individuals from certain targeted groups who have consistently faced barriers to employment.
The main purposes of Form 8850 are:
- To allow employers to request certification from state workforce agencies that an individual is a member of a WOTC targeted group. Certification must be obtained before the employer can claim the tax credit.
- To serve as written pre-screening notice to the state workforce agency that the employer believes the individual may be eligible for WOTC certification.
Some key points about Form 8850:
- It must be completed on or before the day a job offer is made.
- It requires employee information such as name, SSN, address, hire date, etc.
- The employee must also complete additional forms as requested by the employer. Common additional forms are ETA Form 9061 and ETA Form 9175.
- Once submitted to the state agency, a determination will be made regarding WOTC eligibility and certification.
- If an individual is certified, the employer can claim WOTC on their federal tax return using Form 5884. The credit amount ranges from $1,200 to $9,600 depending on the target group.
In summary, Form 8850 is the essential first step for employers to pre-screen potential hires for WOTC eligibility and request certification from the appropriate state agency. Proper completion and timely submission enables employers to qualify for substantial federal income tax credits.
Should I fill out form 8850?
Form 8850 is a critical pre-screening document that employers must complete and submit to their State Employment Security Agency (SESA) if they want to qualify for the Work Opportunity Tax Credit (WOTC).
Here are three key reasons why properly filling out and submitting this form matters:
- Eligibility for Tax Credits: Completing Form 8850 is an essential step in establishing eligibility for thousands of dollars in federal tax credits for hiring individuals from certain targeted groups facing barriers to employment. These groups include veterans, ex-felons, those on government assistance programs, and more.
- Early Identification: Submitting Form 8850 as soon as possible after a job offer allows the SESA to early identify if the job candidate meets the eligibility criteria. This helps avoid delays in receiving certification.
- Compliance: Properly filling out all sections and submitting Form 8850 within 28 days of the employee's start date shows regulatory compliance. Incorrect or late filings can risk losing eligibility for the Work Opportunity Tax Credit.
In summary, Form 8850 plays a vital role for employers wanting to qualify for substantial federal hiring incentives. Carefully completing and promptly submitting this document is crucial for establishing eligibility, enabling early verification, and demonstrating compliance.
What is WOTC pre screening?
The Work Opportunity Tax Credit (WOTC) pre-screening process refers to completing IRS Form 8850 to determine if a job candidate qualifies as a member of one of the WOTC target groups.
If a new hire is certified as eligible for the WOTC, the employer may be able to claim a federal tax credit as an incentive for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
The WOTC Pre-Screening Process Includes:
- Having all new hires complete Form 8850 on or before the day a job offer is made. This form captures information to identify if the applicant qualifies for the tax credit under one of the WOTC target groups.
- Submitting Form 8850 to the State Workforce Agency within 28 days after the new hire begins work. The agency will determine if the employee is certified as meeting the minimum eligibility requirements for one of the WOTC target groups.
- If the new hire is certified, the employer will receive Form 9061, confirming the employee's target group status.
- After the certified employee works a minimum of 120 hours, the employer can submit Form 5884 to claim the tax credit on their federal employment tax return.
Pre-screening all applicants through Form 8850 is essential to qualify for the Work Opportunity Tax Credit. It streamlines the certification process and allows employers to easily identify any new hires that may make their business eligible for the substantial federal tax savings this credit offers.
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Step-by-Step Instructions for Completing Form 8850
Section 1: Gathering Candidate Information
To complete Section 1 of Form 8850, the employer must gather key identifying information from the job candidate, including:
- Full legal name
- Home address with apartment number
- Social security number
- Hire date
This section is crucial for verifying the candidate's eligibility for the Work Opportunity Tax Credit. Failing to collect accurate details could lead to delays or denial of the tax credit.
Section 2: Employer Information and Declaration
Section 2 requires the employer to provide their business details and sign the declaration. Key components include:
- Business legal name and trade name (if different)
- Employer Identification Number (EIN)
- Address where the employee will primarily work
- Salary amount offered to the employee
- A declaration stating that the employee has been offered employment contingent on completion of Form 8850
By signing Section 2, the employer attests that the information provided is accurate. False or misleading statements can result in fines or legal consequences.
Section 3: Work Opportunity Tax Credit Questionnaire
This questionnaire determines the new employee's eligibility status under the Work Opportunity Tax Credit program. The employer must:
- Select any target groups that apply to the candidate
- Answer additional screening questions related to family income, vocational rehabilitation referrals, veteran status, ex-felon status, etc.
Properly completing Section 3 ensures the maximum tax credit benefit entitled to the employee. Leaving any relevant target groups unselected could cause loss of credits.
Section 4: Signature and Submission Deadlines
The final section requires signatures from both the job candidate and the employer, along with the signature date. Key deadlines include:
- Employee Signature Deadline: By the job offer date
- Employer Submission Deadline: Within 28 calendar days after the employee's start date
Meeting these deadlines is crucial for qualifying for the tax credits. Late submissions can lead to denial of the WOTC benefit.
Navigating the Submission Process for Form 8850
Filing with the State Workforce Agency
To receive certification for the Work Opportunity Tax Credit (WOTC), employers must submit IRS Form 8850 to their state workforce agency within 28 days after the new hire's start date. Form 8850 can often be submitted electronically through the state's WOTC portal. If submitting by mail, send the completed form to the address listed on the state's WOTC website.
Keep copies of all submitted Form 8850s for your records. Track submission dates and follow up with the agency if you don't receive certification within 2-3 weeks. Certification can take 6-8 weeks during peak periods.
Understanding the Certification Process
After receiving Form 8850, the state workforce agency verifies if the job seeker meets target group criteria based on supporting documentation like proof of residency, food stamp records, or veteran status records.
If the new hire is certified as eligible, the agency issues two letters:
- ETA Form 9061: Sent to the employer, serves as proof of the employee's target group status for the WOTC.
- ETA Form 9062: Sent to the employee, notifies them of their WOTC certification.
Recordkeeping Requirements for WOTC Claims
To claim the WOTC on Form 5884, employers must retain all records related to certifications for at least 3 years after claiming the credit, including:
- Completed Form 8850
- ETA Form 9061 certifying target group eligibility
- New hire eligibility records like proof of residency or food stamp participation
- Employee hour and wage records
Maintaining thorough records is key to supporting your WOTC claims if audited by the IRS.
Leveraging ADP’s Web-Based WOTC Solutions
ADP offers automated solutions like ADP SmartCompliance to simplify the entire WOTC process - from pre-screening employees, to submitting certification paperwork, to documenting tax credits. Their team of experts handles all filings and records, while providing visibility through an online portal.
Using ADP's WOTC services can save considerable administrative time while ensuring full compliance with all program requirements. Their specialists stay up-to-date on the latest regulations around Form 8850 and related WOTC paperwork.
Additional Forms and Resources Related to Form 8850
Form 8850 plays a central role in the Work Opportunity Tax Credit (WOTC) application process. However, additional forms and resources help provide supplementary information to certify candidate eligibility.
About Form 5884, Work Opportunity Credit
The IRS Form 5884 allows employers to claim the tax credit after receiving certification that the hired employee belongs to a WOTC target group. Form 8850 initiates the eligibility determination process. Once certified, employers can complete Form 5884 and claim the tax credit on their federal income tax return.
Completing ETA Form 9061: Individual Characteristics Form
The ETA Form 9061 requests details regarding the new hire's demographic background, employment history, education, and other characteristics relevant to WOTC target group membership. It provides supplementary evidence to support the eligibility claim made on Form 8850. State workforce agencies use the information to determine certification.
ETA Form 9062: Conditional Certification
In some cases, a state workforce agency can issue a conditional certification if the job seeker likely qualifies for WOTC but requires additional documentation. The employer then presents ETA Form 9062 to the potential employee to sign and attest that they meet the conditional target group criteria.
Accessing Spanish Versions of WOTC Forms
The Department of Labor provides Spanish translations of key WOTC eligibility forms, such as ETA Form 9061. These accommodate Spanish-speaking candidates as part of a diverse, multicultural workforce. Employers can supply the Spanish - ETA Form 9061 to break down language barriers during the eligibility process.
Exploring ETA Form 9175: Long-Term Unemployment Recipient Self-Attestation
The ETA Form 9175 allows candidates to self-certify that they meet the long-term unemployment target group criteria. This form verifies they worked less than 40 hours in the 60 days prior to being hired and enables employers to claim the tax credit for hiring the long-term unemployed.
Best Practices for Employers and HR Professionals
Integrating WOTC into the Hiring and Onboarding Process
The Work Opportunity Tax Credit (WOTC) should be incorporated into standard hiring procedures to maximize benefits. Here are some best practices:
- Train recruiting and HR teams on WOTC eligibility requirements. Provide clear guidelines on target groups.
- Add WOTC screening questions to application forms and interviews. Ensure candidates self-identify as eligible.
- Include Form 8850 in the offer letter process. Have new hires complete on first day.
- Submit Form 8850 to state workforce agencies within 28 days of employee's start date.
- Use automated solutions to screen candidates and track WOTC status. Streamlines process.
Integrating WOTC early allows properly vetting candidates and meeting deadlines. Ongoing training helps avoid mistakes.
Ensuring Timely and Accurate Submissions
Submitting WOTC paperwork on time and accurately is critical for getting credits approved. Tips include:
- Set calendar reminders for form deadlines based on employee start dates.
- Collect candidate signatures digitally to avoid mail delays.
- Confirm worker addresses match state workforce agency records.
- Carefully enter data from Form 8850 into ETA 9061/9062. Double check for errors.
- Follow up with agencies if status unclear. Resubmit if forms rejected.
Meeting deadlines and fixing errors quickly helps avoid credit denials. Stay organized and verify data accuracy.
Staying Informed: All Revisions for Form 8850
Form 8850 guidelines evolve so employers must stay up to date:
- Bookmark IRS Form 8850 page and subscribe for updates.
- Review Notice 2021-43 clarifying "designated community residents".
- Check Revenue Procedure 2021-18 with 2022 inflation adjustments.
- Revisit instructions if form is redesigned or new target groups added.
- Train teams on changes to ensure compliance.
Monitoring revisions, clarifications, and inflation adjustments helps maximize credits under the most current guidelines.
Leveraging Technology for WOTC Management
Automation and software streamline cumbersome WOTC paperwork and tracking:
- Use e-signature tools like DocuSign for digital form signing.
- Integrate WOTC screening into your ATS or HRIS via API.
- Use platforms like ADP's web-based WOTC solution to manage process.
- Automate form population, submission reminders, status alerts.
- Centralize tax credit data monitoring and reporting.
Technology reduces manual tasks so HR can focus on value-add activities.
Conclusion: Maximizing the Work Opportunity Credit
Recap of the WOTC Application Process
The key steps for employers to follow when applying for the Work Opportunity Tax Credit are:
- Pre-screen candidates for WOTC eligibility using Form 8850 before making a job offer. Have the candidate complete and sign the form.
- Make a job offer to the WOTC eligible candidate.
- Complete ETA Form 9061 or 9062 after the candidate begins work. Submit to the state workforce agency within 28 days.
- Receive certification from the workforce agency that the employee is a member of a WOTC target group.
- Claim the tax credit on IRS Form 5884 when filing tax returns. Calculate the maximum allowable credit per WOTC employee.
Final Reminders for Employers
When going through the WOTC application and certification process, employers should remember:
- Complete and submit Form 8850 on time for every new eligible hire. Late submission results in credit denial.
- Respond promptly to any requests for additional info from the workforce agency. Delayed replies can invalidate applications.
- Maintain detailed records on certified employees for compliance. Keep Form 8850, ETA forms, and certification letters.
- Consult the IRS website and Revenue Procedure 2021-43 for the latest requirements before filing. Requirements are frequently updated.
Following the proper procedures accurately and keeping vigilant records enables employers to qualify for the maximum permissible tax credits under the Work Opportunity program.
