Do You Even WOTC?
By: Kristine Overacker
If you have not added the Work Opportunity Tax Credit (WOTC) to your new hire program, you may be wasting valuable tax credits. WOTC is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment. The credit is intended to incentivize workplace diversity and facilitate access to gainful employment for people with obstacles to employment.
WOTC is available to employers who hire individuals from the following targeted groups:
Temporary Assistance for Needy Families (TANF) Recipients
Supplemental Nutrition Assistance Program (SNAP) Recipients (Food Stamps)
Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
An Empowerment Zone is a designated geographic area, typically in economically distressed urban or rural regions, where businesses are eligible for certain tax credits.
Vocational Rehabilitation Referred Individuals
Supplemental Security Income (SSI) Recipients
Summer Youth Employees (living in Empowerment Zones)
Qualified Long-Term Unemployment Recipients
Long-Term Family Assistance Recipients
Each group has specific requirements for eligibility, so it's important to ensure the individual meets those requirements before applying for the credit.
The maximum WOTC varies depending on the targeted group the employee falls under. However, the maximum credit generally ranges from $1,200 to $9,600 per qualified employee. For example, the maximum credit for hiring a qualified veteran is up to $9,600, while for other groups, like SNAP recipients, it's up to $2,400.
The actual credit amount also depends on a few additional factors including the number of hours worked and the wages earned by the employee in the first year. The credit generally applies to the first year of employment for a qualified individual. However, for certain groups like TANF recipients, the credit can be applied for the second year of employment as well. In the second year, employers can claim a tax credit of up to 50% of the first $10,000 of qualified wages. The actual credit calculation depends on the number of hours the employee works and the wages earned in the qualifying period.
If a new hire qualifies for WOTC, follow these steps:
Complete the IRS Form 8850, Pre-Screening Notice, and Certification Request for the Work Opportunity Credit, by the day the job offer is made.
Complete the Department of Labor's ETA Form 9061, Individual Characteristics Form.
Submit both forms to your state workforce agency within 28 days of the employee's start date. Submission procedures vary by state, so check with your state's WOTC coordinator or website:
Wait for the state workforce agency to determine eligibility. If approved, you can claim the tax credit on your next federal business income tax return using IRS Form 5884.
Keep track of the employee's hours and wages for the first year of employment. You’ll need this information to calculate the credit.
Remember, it's essential to complete and submit all paperwork promptly to ensure you qualify for the credits. As always, let us know if you need assistance.
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