Publication 954 |
2001 Tax Year |
Work Opportunity Credit
The work opportunity credit provides businesses with an incentive
to hire individuals from groups that have a particularly high
unemployment rate or other special employment needs. Your business
does not have to be in an empowerment zone, enterprise community, or
renewal community to qualify for this credit. You can claim the credit
if you pay or incur "qualified first-year wages" to a "targeted
group employee."
At the time this publication was printed, this credit was set to
expire for individuals who begin work for you after December 2001.
Targeted group employee.
A targeted group employee is any employee who has been certified by
your state employment security agency (SESA) as a:
- Recipient of assistance under Temporary Assistance for Needy
Families (TANF),
- Veteran,
- Ex-felon,
- High-risk youth,
- Vocational rehabilitation referral,
- Summer youth employee,
- Food stamp recipient, or
- Supplemental security income (SSI) recipient.
The employee must meet the requirements explained in the
instructions to Form 8850.
State certification required.
An employee is not considered a targeted group employee without
SESA certification. To receive certification, submit Form 8850
to your SESA.
You must either:
- Receive the certification by the day the individual begins
work, or
- Do both of the following:
- Complete Form 8850 by the day you offer the individual a
job, and
- Submit the form to your SESA by the 21st day after the
individual begins work.
Qualified first-year wages.
Qualified first-year wages are qualified wages you pay or incur for
work performed by a targeted group employee during the 1-year period
beginning on the date the individual begins work for you. Qualified
wages are generally wages subject to the Federal Unemployment Tax Act
(FUTA) without regard to the FUTA dollar limit, but not more than
$6,000 each tax year for each employee ($3,000 each tax year for a
summer youth employee).
If the work performed by the employee during more than half of any
pay period qualifies under FUTA as agricultural labor, the first
$6,000 of that employee's wages subject to social security and
Medicare taxes are qualified wages. For a special rule that applies to
railroad employees, see section 51(h)(1)(B) of the Internal Revenue
Code.
Nonqualified wages.
See Form 5884 for a complete list of wages that do not qualify for
the credit. Some of the most common wages that do not qualify include
wages you pay or incur to an employee who:
- Has worked for you for more than 1 year,
- Is your relative or dependent,
- You rehired, if he or she was not a targeted group employee
when employed earlier, or
- Does not work for you for at least 120 hours.
Amount of credit.
The following table shows the rate you apply to qualified
first-year wages you pay or incur each tax year to a targeted group
employee who works the number of hours shown. The table also shows the
maximum credit you can claim each tax year for each targeted group
employee.
Table 2. Rate and Maximum Credit Each Tax Year
for Each Targeted Group Employee
Hours Worked |
Rate |
Maximum Qualified First-Year Wages |
Maximum Credit |
At least 400 |
40% |
$6,000* |
$2,400 |
Fewer than 400 but at least 120 |
25% |
6,000* |
1,500 |
*$3,000 for a summer youth
employee |
Claiming the credit.
Use Form 5884 to claim this credit.
Effect on salary and wage deduction.
In general, you must reduce the deduction on your income tax return
for salaries and wages by the amount of your work opportunity credit.
Effect on empowerment zone and renewal community employment
credits.
Wages you use to claim the work opportunity credit cannot be used
to figure the empowerment zone or renewal community employment
credits. In addition, they reduce the maximum wage amount you can use
to figure either of those credits.
Effect of welfare-to-work credit.
You cannot claim both the work opportunity credit and the
welfare-to-work credit for the same employee during the same tax year.
More information.
For more information about the work opportunity credit, see Form
5884.
Previous| First | Next
Publication Index | IRS-Forms Main | Home
|