The Work Opportunity Tax Credit (WOTC) is a government tax credit that employers can get for hiring people from certain groups who have had a hard time getting jobs in the past. Employers can get a WOTC Tax Credit of between $2,400 and $9,600 per application.
WOTC Tax Credit
The federal Work Opportunity Tax Credit is available to employers who hire and keep qualified veterans and people from other groups that have had trouble finding work in the past.
By creating job opportunities, this program also helps other government aid programs do their jobs better. The Consolidated Appropriations Act of 2021 made it possible for the Work Opportunity Tax Credit (WOTC) to last until December 31, 2025.
The Work Opportunity Tax Credit (WOTC) is a government tax credit that companies can get if they hire people from certain groups who have had a lot of trouble getting jobs in the past. Companies that hire people who are qualified could get credits worth between $1,200 and $9,600.
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How much is the Work Opportunity Tax Credit?
There are different amounts of tax credits available through the WOTC program. The amount of credits depends on the type of job the worker did, the number of hours worked, and the total amount of qualified wages paid.
As of 2020, the most that most target groups can get in credit for each new job that meets certain requirements is $2,400. Some groups may be able to get more credit. For instance, hiring certain qualified soldiers could lead to a $9,600 credit for every new hire who meets the requirements.
As a WOTC credit, 40% of the first $6,000 of a qualifying first-year salary is given. The highest credit is $2,400. People must work at least 120 hours to get the half WOTC credit of $1,500, and they must work at least 400 hours to get the full $2,400 credit.
How Do employers claim the Work Opportunity Tax Credit?
There are several steps that employers must take to make sure they hire qualified people and get approval from the right state offices in order to claim the Work Opportunity Tax Credit (WOTC). Employers can get the WOTC by following this step-by-step guide:
- Get a list of people who might be looking for work from the SWA or the unemployment office in your area.
- Ask the applicant to fill out the first page of Form 8850 by the date of the job offer or before. This will help you figure out if they are eligible for one of the WOTC target groups.
- Give the SWA the filled-out Form 8850 and either the ETA Form 9061 or 9062 within 28 days of the date the qualified new hire began.
- At least 120 hours of work must be put in by WOTC-certified workers in their first year of work for a company to be able to claim credits based on a percentage of qualified wages.
- Individuals who receive TANF are expected to work 400 hours.
- When you file your taxes every year, use IRS Form 5884 to claim the WOTC.
If the IRS decides to look into the credits you claim, make copies of all the forms and other paperwork you send to SWAs and keep accurate records of your employees’ hours worked.
Who qualifies for the Work Opportunity Tax Credit?
Employers may be able to get the Work Opportunity Tax Credit (WOTC) if they hire someone from one of the groups the IRS says has had trouble getting jobs in the past. Workers who are eligible for the Work Opportunity Tax Credit The following groups are seen as target groups under the WOTC program:
- Qualified short-term and long-term IV-A recipients (Temporary Assistance for Needy Families)
- Qualified veterans
- Ex-felons
- Designated community residents (DCR)
- Vocational rehabilitation referrals
- Summer youth employees
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Qualified long-term unemployment recipients
Employees not eligible under the Work Opportunity Tax Credit program
Some people aren’t on the list of WOTC’s target groups. There is a chance that employers won’t be able to claim the tax credit for a worker who retired, is a family member or dependent, or owns most of the business, even if the worker is otherwise qualified.
Businesses eligible for the Work Opportunity Tax Credit
- Under the WOTC program, any firm, regardless of size or sector, may be able to collect tax credits.
- Additionally, there is no ceiling on the total number of credits that companies may claim since there is no restriction on the number of people they can recruit as part of the program.
Benefits of the WOTC
The WOTC provides substantial benefits for employers, including:
- Tax Savings: Employers can lower their federal income tax bills by up to $9,600 per worker, based on the type of work and the number of hours worked.
- Diversified Workforce: Employers can make the workplace more welcoming and diverse by hiring people from a variety of backgrounds.
- Community Development: Hiring people from poor groups helps the local economy by lowering unemployment and the number of people who need government aid.