The Work Opportunity Tax Credit (WOTC) provides a federal tax credit to employers who hire a qualifying person in at least one of eight target areas. There is a minimum amount of time that the qualified employee must work, and like many things in life, this is subject to change. The eight qualifying target areas are:

• A person receiving Supplemental Security Income (SSI)

• A veteran who is a member of a family that is receiving or recently received food stamps

• An eighteen-to forty-year-old member of a family that is receiving or recently received food stamps

• An ex-felon

• A member of a family that is receiving or recently received Temporary Assistance to Needy Families (TANF) or Aid to Families with Dependant Children (AFDC)

• An eighteen- to twenty-four-year-old resident of a Federally designated Empowerment Zone (EZ), Enterprise Community (EC), or Renewal Community (RC)

• A sixteen- to seventeen-year-old EZ, EC, or RC resident hired to work as a Summer Youth Employee between May 1 and September 15

• A disabled person who completed or is completing rehabilitative services from a state or the U.S. Department of Veterans Affairs

The tax credit for the first year is equal to 40 percent of the first $10,000 in wages. The credit for the second year is 50 percent of the first $10,000 in wages for a total of $9,000 over a two-year period, provided the employee works that long. There is no tax benefit for the third year of employment. If employment ends during either year before the $10,000 cap is reached, the tax credit is based on the actual amount earned.

To participate in the program, complete IRS Form 8850 on the day the job offer is made. Within twenty-eight days of the employee's first day of work, complete and mail ETA Form 9061 or Form 9062 to your state's workforce agency, together with IRS Form 8850. Form 9061 is used if the new employee has not yet been conditionally certified as belonging to one of the eight target groups. Form 9062 is used if the new employee has already been conditionally certified. You can print a copy of Form 8850 and its instructions from the IRS Web site. ETA forms 9061 and 9062 are available from your regional or state WOTC coordinator, who you can find on the U.S. Department of Labor Web site at www.uses.doleta.gov/wotcdata.cfm. Your envelope with the Form 9061 or Form 9062 and IRS Form 8850 must be postmarked no later than twenty-eight days after the employee's first day of work. These procedures may change at any time, so check with your local WOTC coordinator before getting started.

You may not ask an applicant if their status will qualify your company for the WOTC when they are being considered for employment. However, in some instances when a state employment office refers an applicant to you, WOTC eligibility may be disclosed. Although the tax credit will not benefit your company until your year-end or fiscal year-end taxes are filed, many business owners find the credit to be a benefit and worth the time to process the paperwork.