Form 5884 Work Opportunity Credit

2006 Form 5884, Work Opportunity Credit

Purpose: This is the first circulated draft of the 2006 Form 5884 for your review and
comments. See the next page for a discussion of the major changes.
TPCC Meeting: None, but may be arranged if requested.
Prior Version: The 2005 Form 5884 is available at:
http://www.irs.gov/pub/irs-pdf/f5884.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and publications
are posted at:
http://taxforms.web.irs.gov/draft_products.html
Comments: Please email, call, or fax any comments by June 5, 2006.
David Jeffrey Buchanan
Tax Forms and Publications
SE:W:CAR:MP:T:B:P
Email: [email protected]
Phone: 202-622-3085
Fax: 202-622-3262
Memo for Description of Major Changes for Form 5884

Overall, the changes made to Form 5884, Work Opportunity Credit, have been made to
support the redesign of Form 3800, General Business Credit.
We are changing this form from an annual use form to a continuous use form. Therefore,
the revision date changes from a specific year (2006) to a month/date format (Rev.
December 2006).
The form will no longer be separated into parts. Therefore, the designations “Part I” and
“Part II” have been deleted. The text of lines 1 through 6 has been rewritten. Line 6 is
now the last line on the form (lines 7 through 15 have been deleted). A cooperative,
estate, or trust completes the form through line 6 and reports the amount from line 6 on
line 1b of Form 3800. A partnership or S corporation completes the form through line 4
and reports that amount on Schedule K of their applicable return. All other filers
complete the form through line 4 and report the amount from line 4 on line 1b of Form
3800.

In the instructions, we added a “What’s New” to encapsulate the changes. We made
several changes to the instructions to revise or delete text that contained line references or
specific instructions for lines deleted from the form.

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Form

I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 5884, PAGE 1 of 4
MARGINS: TOP 13 mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 432 mm (17") 3 279 mm (11") VERTICAL FOLD IN MIDDLE
PERFORATE: ON FOLD
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

5884

(Rev. December 2006)
Department of the Treasury
Internal Revenue Service

Name(s) shown on return

1

Action

Date

Signature

O.K. to print
Revised proofs
requested

Work Opportunity Credit
OMB No. 1545-0219

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©

Attachment
Sequence No.

Attach to your tax return.

77

Identifying number

Enter on the applicable line below the total qualified first-year wages paid or incurred during the
tax year, and multiply by the percentage shown, for services of employees who began work for
you before the applicable date in the instructions and are certified (if required) as members of a
targeted group.
a Employees who worked for you at least 120 hours but fewer than
400 hours
$

3 25% (.25)

1a

b Employees who worked for you at least 400 hours

3 40% (.40)

1b

$

2

Add lines 1a and 1b. See instructions for the adjustment you must make for salaries and wages

2

3

Work opportunity credit from partnerships, S corporations, cooperatives, estates, and trusts

3

4

Add lines 2 and 3. Cooperatives, estates, and trusts, go to line 5; partnerships and S corporations,
report this amount on Schedule K; all others, report this amount on the applicable line of Form
3800 (e.g., line 1b of the 2006 Form 3800)

4

Amount allocated to the patrons of the cooperative or the beneficiaries of the estate or trust
(see instructions)

5

Cooperatives, estates, and trusts, subtract line 5 from line 4. Report the amount on the applicable
line of Form 3800 (e.g., line 1b of the 2006 Form 3800)

6

5

6

General Instructions
Section references are to the Internal Revenue Code unless
otherwise noted.

What’s New
The tax liability limit is no longer figured on this form;
instead, it must be figured on Form 3800, General Business
Credit.
Taxpayers that are not partnerships, S corporations,
cooperatives, estates, or trusts, and whose only source of
this credit is from those pass-through entities, are not
required to complete or file this form. Instead, they can
report this credit directly on line 1b of Form 3800.
The IRS will revise this December 2006 version of the form
only when necessary. Continue to use this version for tax
years beginning after 2005 until a new revision is issued.
Generally, the work opportunity credit has expired for
wages paid to individuals who began working for you after
2005. An exception applies for certain employees that are
Hurricane Katrina employees. See Hurricane Katrina
exception, later, for more information.
At the time this form was going to print,
Congress was considering legislation that would
allow this credit with respect to other employees
CAUTION
who began work for you in 2006.

Purpose of Form
Use Form 5884 to claim the work opportunity credit for
qualified first-year wages you paid to or incurred for targeted
group employees during the tax year. Your business does
not have to be located in an empowerment zone, enterprise
community, or renewal community to qualify for this credit.
For Paperwork Reduction Act Notice, see instructions.

You can claim or elect not to claim the work opportunity
credit any time within 3 years from the due date of your
return on either your original return or an amended return.

How To Claim the Credit
Generally, you must request and be issued a certification for
each employee from the state employment security agency
(SESA). The certification proves that the employee is a
member of a targeted group. You must receive the
certification by the day the individual begins work or
complete Form 8850, Pre-Screening Notice and Certification
Request for the Work Opportunity and Welfare-to-Work
Credits, on or before the day you offer the individual a job.
If you complete Form 8850, it must be signed by you and
the individual and submitted to the SESA by the 21st
calendar day after the individual begins work. If the SESA
denies the request, it will provide a written explanation of the
reason for denial. If a certification is revoked because it was
based on false information provided by the worker, wages
paid after the date you receive the notice of revocation do
not qualify for the credit.
Hurricane Katrina employee. The certification
requirements described above do not apply to Hurricane
Katrina employees. (See Hurricane Katrina exception, later, to
determine who is considered a Hurricane Katrina employee.)
Instead, the worker must show the employer reasonable
evidence that the worker is a Hurricane Katrina employee. An
employer may use Form 8850 to accept reasonable evidence
that the worker is a Hurricane Katrina employee. If the
employer discovers that the worker is not a Hurricane Katrina
employee, wages paid after the date of discovery will not
qualify for the credit.

Cat. No. 13570D

Form

5884

(Rev. 12-2006)

2
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 5884, PAGE 2 of 4
MARGINS: TOP 13 mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 432 mm (17") 3 279 mm (11") VERTICAL FOLD IN MIDDLE
PERFORATE: ON FOLD
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 5884 (Rev. 12-2006)

Page

Targeted group employee. An employee is a member of a
targeted group if he or she is a:

● Wages paid or incurred to a high-risk or qualified summer
youth employee for services performed while the employee
lived outside an empowerment zone, enterprise community, or
renewal community;

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● Hurricane Katrina employee,
● Qualified recipient of Temporary Assistance for Needy
Families (TANF),
● Qualified veteran,
● Qualified ex-felon,
● High-risk youth,
● Vocational rehabilitation referral,
● Qualified summer youth employee,
● Qualified food stamp recipient, or
● Qualified SSI recipient.
However, if you use any wages of an employee to figure the
welfare-to-work credit for any tax year, the employee is not
treated as a member of a targeted group for that year.
See Form 8850 and section 51(d) for details and restrictions.

Qualified Wages

2

The credit is not allowed with respect to wages for services of
employees who began work for you after December 31, 2005.

Hurricane Katrina exception. You can claim the credit
after 2005 only for wages paid to Hurricane Katrina
employees. To qualify, wages must be paid to a Hurricane
Katrina employee who had a main home in the core disaster
area on August 28, 2005, and, within a two-year period
beginning on that date, was hired for a job whose principal
place of employment is in the core disaster area.
Qualified first-year wages. Qualified first-year wages are
wages you paid or incurred for work performed during the
1-year period beginning on the date the targeted group
member begins work for you. The amount of qualified wages
that may be taken into account for any employee is limited to
$6,000 ($3,000 for a qualified summer youth employee).
Wages qualifying for the credit generally have the same
meaning as wages (excluding tips) subject to the Federal
Unemployment Tax Act (FUTA). If the work performed by any
employee during more than half of any pay period qualifies
under FUTA as agricultural labor, the first $6,000 of that
employee’s wages subject to social security and Medicare
taxes qualify. For a special rule that applies to railroad
employees, see section 51(h)(1)(B).
Qualified wages for any employee must be reduced by the
amount of any work supplementation payments you received
under the Social Security Act.
The amount of qualified wages for any employee is zero if:
● The employee did not work for you for at least 120 hours,
● The employee worked for you previously, unless the
employee is a Hurricane Katrina employee who was not in
your employment on August 28, 2005, and this is your first
hire of the employee after that date,
● The employee is your dependent,
● The employee is related to you (see section 51(i)(1)),
● 50% or less of the wages the employee received from you
were for working in your trade or business, or
● You use any of the employee’s wages to figure the
welfare-to-work credit for the current year.
Qualified wages do not include:
● Wages paid to any employee during any period for which
you received payment for the employee from a federally
funded on-the-job training program;

● Wages paid or incurred for services performed by a
qualified summer youth employee before or after any 90-day
period between May 1 and September 15; and
● Wages for services of replacement workers during a strike
or lockout.

Specific Instructions

Lines 1a and 1b

Note. The “applicable date” is generally December 31, 2005
(see Qualified Wages, earlier). That is, the credit generally is
not allowed with respect to wages for services of employees
who began work for you after December 31, 2005. An
exception applies for Hurricane Katrina employees (see
Hurricane Katrina exception, earlier).
Enter on the applicable line the total qualified first-year
wages paid to employees who are members of a targeted
group. Multiply the wages you enter on each line by the
percentage shown on that line.
Successor employer. For successor employers, the 1-year
period begins on the date the employee first began work for
the previous employer and any qualified first-year wages paid
by the successor employer are reduced by the qualified
first-year wages paid by the previous employer. See section
51(k)(1) and Regulations section 1.51-1(h).
A successor employer is an employer that acquires
substantially all of the property used in a trade or business (or
a separate unit thereof) of another employer (the previous
employer) and immediately after the acquisition, the successor
employs in his/her trade or business an individual who was
employed immediately prior to the acquisition in the trade or
business of the previous employer.
Special instructions for controlled group members. The
group member proportionately contributing the most qualified
first-year wages figures the group credit by completing line 1
through line 4 of the form. See sections 52(a) and 1563. On
separate Forms 5884, that member and every other member
of the group should skip lines 1a and 1b and enter its share of
the group credit on line 2. Each member then completes a
separate form. Each member must attach to its Form 5884 a
schedule showing how the group credit was divided among all
the members. The members share the credit in the same
proportion that they contributed qualifying wages.

Line 2
In general, you must reduce your deduction for salaries and
wages by the amount on line 2. This is required even if you
cannot take the full credit this year and must carry part of it
back or forward. If you capitalized any costs on which you
figured the credit, reduce the amount capitalized by the credit
attributable to these costs.

Line 3
Enter the amount of credit that was allocated to you as a
partner, shareholder, patron of a cooperative, or beneficiary.

Line 5
Cooperatives. A cooperative described in section 1381(a)
must allocate to its patrons the credit in excess of its tax
liability limit. Therefore, to figure the unused amount of the
credit allocated to patrons, the cooperative must first figure its
tax liability. While any excess is allocated to patrons, any
credit recapture applies as if the cooperative had claimed the
entire credit.

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I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 5884, PAGE 3 of 4 (PAGE 4 IS BLANK)
MARGINS: TOP 13 mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 432 mm (17") 3 279 mm (11") VERTICAL FOLD IN MIDDLE
PERFORATE: ON FOLD
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 5884 (Rev. 12-2006)

Page

Estates and trusts. Allocate the work opportunity credit on
line 4 between the estate or trust and the beneficiaries in the
same proportion as income was allocated and enter the
beneficiaries share on line 5.

The time needed to complete and file this form will vary
depending on individual circumstances. The estimated burden
for individual taxpayers filing this form is approved under OMB
control number 1545-0074 and is included in the estimates
shown in the instructions for their individual income tax return.
The estimated burden for all other taxpayers who file this form
is shown below.

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Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue laws
of the United States. You are required to give us the
information. We need it to ensure that you are complying with
these laws and to allow us to figure and collect the right
amount of tax.
You are not required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books
or records relating to a form or its instructions must be
retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by
section 6103.

3

Recordkeeping

5 hr., 58 min.

Learning about the law
or the form

1 hr., 12 min.

Preparing and sending
the form to the IRS

1 hr., 20 min.

If you have comments concerning the accuracy of these
time estimates or suggestions for making this form simpler,
we would be happy to hear from you. See the instructions for
the tax return with which this form is filed.

Printed on recycled paper