Question

Ambre Corporation hires eight individuals on April 2, 2018, all of whom qualify for the work opportunity tax credit. Five of the individuals receive wages of $8,600 during 2018, and each individual works 510 hours during the year. The other three individuals each work 300 hours, and each receives wages of $3,400 during the year.

a. Enter the amount of Ambre's work opportunity tax credit: $ .

b. If Ambre pays total wages of $191,000 to its employees during the year, how much of this amount can Green deduct, assuming the work opportunity credit is taken? $

Answer 1

the amount of credit available depends on the number of hours worked, the amount of qualified wages earned, and the qualified wages cap for the target group under which the new hire qualifies. No credit is allowed for an employee who works less than 120 hours. For an employee who works between 120-400 hours, the amount of credit is 25% of first year wages up to a ceiling determined by the target group. For an employee who works over 400 hours, the credit is 40% of first year wages up to the amount determined by the target group.

In the absense of information, it is assumed the $ 6000 wage cap for calculation.

Work Opportunity Tax Credit = (6000*5*40%) + (3400*3*25%) = $ 14550

Claiming the Credit

Qualified tax-exempt organizations will claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, as a credit against the employer’s share of Social Security tax. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

Taxable Employers

After the required certification is secured, taxable employers claim the tax credit as a general business credit on Form 3800 against their income tax by filing the following:

• Form 5884 (with instructions)
• Form 3800 (with instructions)
• Your business’s related income tax return and instructions (i.e., Forms 1040, 1041, 1120, etc.)

Tax-exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after December 31, 2014, and before January 1, 2020.

After the required certification (Form 8850) is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.

File Form 5884-C after filing the related employment tax return for the period that the credit is claimed. The IRS recommends that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

The credit is limited to the amount of the business income tax liability or social security tax owed.

Employers may claim the Work Opportunity Tax Credit for a total of two years. Employers who do not take the full credit amount because of the tax liability limitation may carry back one year or forward 20 years.