The new employee tax credit your organization may be missing out on

By Mordecai Lerer  |  February 28, 2017

The new employee tax credit your organization may be missing out on

Are you familiar with Internal Revenue Service forms 5884, 5884C and 8850? If not, your organization may be missing an opportunity to reduce its federal tax liability from $1,200 up to $9,600 per new hire.

The great news is, both “for-profit” and “nonprofit[1] employers are eligible for the Work Opportunity Tax Credit (“WOTC”). The WOTC offers taxpayers a federal income tax credit worth as much as 40% of the qualified first year wages for hiring qualified employees with significant barriers to employment.

Qualified individuals are certified by the State Workforce Agency (SWA) as a benefit for employers who hire members of targeted groups, such as:

  • People who receive Food Stamps (Supplemental Nutrition Assistance Program – “SNAP”)
  • People who receive Welfare (Temporary Assistance for Needy Families – “TANF”)
  • People unemployed for 27 weeks or longer
  • Veterans that have been unemployed 6 month or longer
  • People who live in a federal Empowerment Zone or Rural Residential Community
  • People who receive Supplemental Security Income (Disabled persons)
  • Ex-felons
  • Summer Youth employment who live in a federal empowerment zone

What is the process for claiming WOTC?

Internal Revenue Code 51(d)(13) permits a prospective employer to request of the applicant to complete form 8850 - Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit. The prospective employer then submits form 8850 to their local SWA for approval of a qualified individual. The prospective employer must be issued a certification for each qualified employee to claim the WOTC. To claim the WOTC, employers complete either forms 5884 (For-Profit) and 5884-C (Non-Profit), the credit is adjusted on their respective tax return[2].

For more information: 

If you have questions about this alert, please contact:


Mordecai Lerer, CPA, Partner


Jacob Beniawski, CPA, Partner


Joseph Frohlinger, Principal


[1] Nonprofit employers WOTC are only eligible for Qualified Veterans and the credit is used to reduce the   employer’s portion of the social security taxes.

[2] Please consult with your tax advisor for specific requirements for deductibility in whole or in part. Nothing in this communication is intended to constitute legal or tax advice.

About Mordecai Lerer

Mordecai Lerer

Mordecai Lerer, CPA, is a Tax Partner in the Commercial Business Group at Marks Paneth LLP. He has been providing strategic tax and advisory services to businesses and individuals for over 35 years. Mr. Lerer advises clients in the manufacturing, wholesale and distribution sector, as well as the real estate and educational services industries. He also provides tax planning and compliance solutions to personal service businesses and high-net-worth individuals. In this capacity, he handles state,... READ MORE +

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