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IRS Updates Information for Federal Work Opportunity Tax Credit

S.J. Steinhardt
Published Date:
Sep 22, 2022

GettyImages-174879501 IRS Internal Revenue Service

The IRS has updated its guidance for the federal Work Opportunity Tax Credit (WOTC) in the face of a ProPublica investigation into its abuses, Accounting Today reported.

The WOTC was created in 1996 to stimulate the hiring of certain categories of workers “who have faced significant barriers to employment.” Those workers are categorized as follows:

• Qualified IV-A Temporary Assistance for Needy Families recipients;
• Certain veterans, including unemployed or disabled veterans;
• The formerly incarcerated or those previously convicted of a felony;
• Designated community residents living in Empowerment Zones or Rural Renewal Counties;
• Vocational rehabilitation referrals;
• Summer youth employees living in Empowerment Zones;
• Supplemental Nutrition Assistance Program food stamp recipients;
• Supplemental Security Income recipients;
• Long-term family assistance recipients; and
• Qualified long-term unemployment recipients.

The hiring was meant to be full time but, as ProPublica reported, many workers were hired for as little as 120 hours before being let go—while still enabling the employer to claim the credit.

“Employers can get the maximum credit—40% of a worker’s wage, up to $2,400—after just 10 weeks,” ProPublica reported. “The criteria say nothing about type of employer or the quality of the job and don’t forbid companies with a history of workplace violations from participating.”

The IRS’s updated information now requires that the pre-screening notice be completed by the job applicant and the employer to satisfy the pre-screening and certification process. ProPublica found that many eligible workers were hired for the minimum amount of time necessary in order for the employer to claim the credit, then fired after a background check turned up something terminable, such as a previous felony conviction.

The article reported that Walmart, Dollar General and Amazon are the top recipients of the tax credit. Publicly traded temp agencies such as Kelly Services and TrueBlue received more than $100 million each in tax credits under the $2 billion program.

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