Overview
Planning to hire? Two types of tax credits are now offered to employers who hire and retain disadvantaged workers.
The incentives for helping those most in need into the workforce have never been greater. And taking advantage of the new Welfare-to-Work tax credit and the existing Work Opportunity Tax Credits (WOTC) has never been easier.
Welfare-to-Work Tax Credit.
Now employers can take as much as $8,500 directly off your federal income tax by hiring and retaining a long-term welfare recipient.
Members of families on public aid for the preceding 18 months earn their new employers up to $3,500 for their first year on the job and up to $5,000 for the second year at work.
By employing these individuals defined as most in need, you will join the growing ranks of Illinois employers providing jobs to those who face significant barriers to employment … while enjoying an unprecedented tax break. Perhaps best of all, it can be done by simply completing two forms.
How is the credit calculated?
The Welfare-to-Work Tax Credit for new hires employed 400 or more hours or 180 days is 35% of qualified wages for the first year of employment, and 50% for the second year. Qualified wages are capped at $10,000 per year.
Who Qualifies for the Welfare-to-Work Tax Credit? To earn the new Welfare-to-Work Tax Credit, hire any member of a family:
- who received family welfare (AFDC or its successor program, Temporary Assistance for Needy Families, TANF) for at least the 18 consecutive months before date of hire, or
- whose AFDC or TANF eligibility expired under federal or state law after August 5, 1997, or
- who received AFDC or TANF for at least 18 months after August 5, 1997, and
- begin work any time after December 31, 1997 and before December 31, 2005.
Work Opportunity Tax Credit
What if employees don't qualify for the new Welfare-to-Work tax credit? They may qualify for the existing Work Opportunity Tax Credits.
The maximum tax credit under WOTC has been increased to $2,400 per new worker, calculated at 40% of the first $6,000 in wages. You must retain the worker in your employ for a minimum of 400 hours to qualify for the full 40 percent credit. New, eligible workers working for 120 to 399 hours earn you a 25 percent credit on any wages up to $6,000.
Which Hires Qualify Employers for the Work Opportunity Tax Credit (WOTC)?
To earn the WOTC credit, you may hire any member of a family that received family welfare for any nine of the 18 months (long-term before date of hire, OR members of the following groups:
- Youths aged 18-24 from families with Food Stamps
- U.S. Veterans receiving Food Stamps
- Vocational rehabilitation referrals
- 18-24 year-olds living in Enterprise Communities or Empowerment Zones
- Summer employees, 16 or 17 years old, living in one of the same special areas.
- Low-income ex-felons
- Supplemental Security Income recipients
How to Certify Eligibility for Either Credit
When a candidate is first interviewed by an employer, the employer is required to pre-screen the potential employee to determine eligibility. An employer must complete both a Pre-Screening Notice (IRS 8850) and an Individual Characteristics Form (ETA 9061) on or before the day a job offer is made.
These forms must be received by IDES/IETC, either mailed or hand-carried, not later than the 21st day after the individual begins work for the employer.
In cases where IDES has pre-determined that your prospective employee is eligible for either the Welfare-to-Work or Work Opportunity Credit, that applicant is given a conditional certification document. The employer is responsible for completing the Conditional Certification and returning it to the IDES office.
To Claim Your Tax Credit
After IDES receives your completed forms, you will receive an Employer Certification.
You can then claim the credit on your federal income tax return, by submitting the Employer Certification, together with IRS Form 5884.
How to Find Eligible Workers
Information about the Welfare-to-Work and Work Opportunity Tax Credit programs is available through a statewide network of IDES offices and Illinois Employment and Training Centers (IETC's). To find qualified tax-credit-eligible candidates, employers can use the new Illinois Skills Match or contact their nearest IETC and ask for staff assistance to locate Tax Credit eligible candidates for job openings.
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