We recently got a question from a non-profit employer wanting to know if his new employee was WOTC-eligible. There is some fairly heavy language from the Department of Labor that answers this question, but we found a more direct and practical answer.

"Non-profits, charities, and other tax-exempt organizations are generally required to file Form 990 or Form 990-EZ with the Internal Revenue Service each year to maintain their tax-exempt status. Form 990 is an “information return” and is required to be filed under the provisions of Internal Revenue Code Section 6033.

So for those orgs, the IRS says (http://www.irs.gov/formspubs/article/0,,id=177948,00.html): “This law provides an expanded work opportunity tax credit to businesses that hire eligible unemployed veterans and for the first time also makes part of the credit available to tax-exempt organizations. Businesses claim the credit as part of the general business credit and tax-exempt organizations claim it against their payroll tax liability. The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013. More information will be posted soon.”

Non-profits that engage in for-profit business enterprises may be subject to corporate income taxes on its unrelated business income. To be considered unrelated business income, the income must be generated by a business that is “regularly” carried on and that is “unrelated” to the exempt function of the non-profit. Unrelated business income is defined and explained in the Definitions section of the Instructions for Form 990-T.

For example, one of my non-profit clients provides job training and employment services to persons with disabilities. It generates business income to fund its mission through the manufacture of frames and battery terminal lugs and the services of custom framing, chair caning, and the sorting of commingled recyclables. So, as it has more than $1,000 in gross income from an unrelated business, it must file Form 990-T. Non-profits are that not otherwise required to file Form 990 (such as religious organizations) are required to file Form 990-T if they have unrelated business income.

On Form 990-T the WOTC is claimed on Part 4, Line 40c. The organization must also attach Form 3800 (General Business Credit), where, in Part III Line 4b you claim the total amount of credit as determined from the Forms 5884 (Work Opportunity Credit) you submitted to your SWA. The WOTC Employer Certification Forms you’ve received for each qualified hire are your proof that you have earned the credit."