Work Opportunity Tax Credit

What is The Work Opportunity Tax Credit (WOTC) and how can this benefit you as an employer?  The WOTC is a Federal tax credit available to employers that hire and retain individuals from certain target groups that face difficulty finding employment.  The WOTC is one of several workforce programs that incentivize workplace diversity while providing target groups the opportunity of having a good job.

The credit available to employers ranges from $1,200 to $9,600 per employee.  There are several determining factors in computing the amount of the credit.  The tax credit depends on the target group of the individual hired, the wages paid to the individual during the first year of employment, and the number of hours the individual worked.  There is no limit on the number of individuals hired for which the employer can receive this tax credit.  Generally, the employer can claim a tax credit equal to 25% or 40% of a new hire’s first year wages, up to the maximum credit for the target group that the employee belongs to.

So who can you hire – what are the target groups, and what is the maximum tax credit?

Target Group	Maximum Tax Credit
Veterans
Receives SNAP benefits	$2,400
Entitled to Compensation for Service- Connected Disability
Hired one year from leaving service	$4,800
Unemployed at least 6 months	$9,600
Unemployed
At least 4 weeks	$2,400
At least 6 months	$5,600
Short-Term Temporary Assistance for Needy Families (TANF) Recipient	$2,400
Long-Term TANF Recipient (over 2 years)	$9,000
Supplemental Nutrition Assistance Program (SNAP food stamp) Recipient	$2,400
Designated Community Resident	$2,400
Vocational Rehabilitation Referral	$2,400
Ex-Felon	$2,400
Supplemental Security Income Recipient	$2,400
Summer Youth Employee	$1,200

The long-term TANF target group follows a slightly different credit calculation than the other target groups.  If an employee is hired from this target group, the credit is available for up to a two year period.

• In the first year, the employer may claim a tax credit equal to 40% of the first-year wages, up to the maximum tax credit, if the individual works at least 400 hours.
• In the second year, the employer may claim a tax credit equal to 50% of the second-year wages, up to the maximum tax credit, if the individual works at least 400 hours.

For all other target groups, the credit is based on the individual’s hours worked and wages earned in the first year.

• If the individual works at least 120 hours, the employer may claim a tax credit equal to 25% of the individual’s first year wages, up to the maximum tax credit.
• If the individual works at least 400 hours, the employer may claim a tax credit equal to 40% of the individual’s first year wages, up to the maximum tax credit.

Target group employees are offered the opportunity to move from governmental dependency into self-sufficiency with the WOTC.  Not only is it a benefit to the employee, but it is a benefit to the employer as well.  In December 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), which extended and modified the WOTC Program and Empowerment Zones.  The WOTC will be available to employers through December 31, 2019.

How can you apply?

1. Complete page 1 of IRS Form 8850 by the day the job offer is made.
2. Complete page 2 of IRS Form 8850 after the individual is hired.
3. Complete ETA Form 9061 or ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a state workforce agency, Vocational Rehabilitation agency, or another participating agency.
4. Submit the completed and signed IRS and ETA forms to your state workforce agency. Forms must be submitted within 28 calendar days of the employee’s start date.

If you have any questions on the WOTC or would like additional information, please contact our office.

 

 

https://www.doleta.gov/business/incentives/opptax/eligible.cfm

 

Photo: 401kcalculator.org