Work Opportunity Tax Credit (WOTC) Expanded to Benefit Rural Employers

The President signed into law the Small Business and Work Opportunity Act on May 25, 2007. There were several items addressed in the law, although we would like to point out the rule for employers that hire new employees in a "rural renewal county." This credit is effective for hires from now until September 1, 2011.

There are 30 Iowa counties that are designated as "rural renewal counties," which includes several counties that surround many of our clients (see map below for starred counties). The Act amends the original WOTC to include businesses that hire a "designated community resident." The resident needs to be a person who is at least 18 years of age, but under age 40 as of there hire date and is a resident of on of the rural renewal counties.

The credit is rather significant, allowing a maximum of $2,400 for each eligible employee that is hired. The credit is calculated on 40% of the employee's first $6,000 in wages, as long as the employee works for at least 400 hours during the first year of employment. There is a discounted credit for those employees who work at least 120 hours but less than 400 hours. The employee needs to reside in the rural renewal community during the time you wish to claim the credit. There is no limitation to what the employee can earn, so even newly hired highly compensated employees are eligible under this credit.

You will need to file a form within 28 days of hiring your eligible employee. Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, can be downloaded by clicking this link. The completed form should be mailed, not faxed, to:

Jeanne Sorenson
State WOTC Program Coordinator
150 Des Moines Street
Des Moines, IA 50309
Phone: 515-281-9010

After you submit the request, the agency will send the employer a certification letter. You must also file either an ETA Form 9061 , Individual Characteristics Form, or an ETA Form 9062, Conditional Certification Form, with Jeanne Sorenson as well.

The credit can be claimed when filing the employer's income tax return. When you supply us with your tax information, you would include the wages for employee's who meet the following groups:

1. Employees who have worked for you at least 120 hours but fewer than 400 hours.
2. Employees who have worked for you at least 400 hours.

More information on the credit is available at the Iowa State University Center for Agricultural Law and Taxation website www.calt.iastate.edu/PDF/WOTC.pdf.