Hurricane Katrina: Work Opportunity Credit

If a business is located in a Federal Emergency Management Agency (FEMA)-designated individual assistance area (see Exhibit 1), employers may be able to claim a tax credit for wages paid to employees hired over the next two years. The credit is worth up to $2,400 (40% of the first $6,000 paid) in the first year the employee works for the employer.

For the credit to apply, new hires must:

• Have been living in a FEMA-designated individual assistance area on Aug. 28, 2005;

• Have been hired within two years of Aug. 28, 2005;

• Work at the businesss location in a FEMA-designated individual assistance area; and

• Provide the employer with reasonable evidence that they were living in the FEMA-designated individual assistance area.

The credit does not apply to current wages paid to employees who were employed on Aug. 28, 2005, but does apply to wages paid to former employees who were rehired after Hurricane Katrina.

If the business is located outside a FEMA-designated individual assistance area, employers may claim the credit for employees hired through the end of the 2005 calendar year. For the credit to apply, new hires must have been:

• Living in a FEMA-designated individual assistance area on Aug. 28, 2005;

• Displaced from their homes by Hurricane Katrina; and

•  Hired from Aug. 27, 2005 to Dec. 31, 2005.

New hires must provide their employers with reasonable evidence that they were displaced from their homes in the FEMA-designated individual assistance area by Hurricane Katrina. For more details, see Katrina Emergency Tax Relief Act of 2005 Section 201 and JCX-69-05 (9/22/05), p. 10.

From Linda Gurene, San Antonio, TX