Use the Work Opportunity Tax Credit to Your Advantage

How does the Work Opportunity Tax Credit Work?

When an employer hires a member of a WOTC group, they may apply for a general business credit against their income tax. By employing such individuals, participating companies can bet 40% and up to $6,000 of wages paid to the qualifying WOTC individual against their taxes.

Who qualifies under the WOTC?

The targeted groups under the Work Opportunity Tax Credit are those who often struggle to find adequate employment. According to section 51 of the code, the following are considered targeted groups:

• the formerly incarcerated or those previously convicted of a felony;
• recipients of state assistance under part A of title IV of the Social Security Act (SSA);
• veterans;
• residents in areas designated as empowerment zones or rural renewal counties;
• individuals referred to an employer following completion of a rehabilitation plan or program;
• individuals whose families are recipients of supplemental nutrition assistance under the Food and Nutrition Act of 2008;
• recipients of supplemental security income benefits under title XVI of the SSA;
• individuals whose families are recipients of state assistance under part A of title IV of the SSA;
• individuals experiencing long-term unemployment.

Who doesn’t qualify?

Any individual who is not listed in the targeted groups section does not qualify for the Work Opportunity Tax Credit. In addition, the WOTC-targeted employee must be in their first year of employment with the employer. They must also provide at least 400 hours of service to that employer.

Why does this benefit you?

Depending on the industry which you work in, you may benefit more than other businesses from the Work Opportunity Tax Credit. No matter your profession, however, a $6,000 discount on your income taxes has to be of benefit. Consider connecting with a tax professional to determine how you can maximize your benefits from this new opportunity.

How can you find qualified WOTC groups?

The American Job Centers and partnering agencies and programs can help employers connect with skilled job seekers who may be in a targeted group for the WOTC. American Job Centers (AJCs) can assist employers in recruiting talent, hosting job fairs, conducting skills assessment, and providing support to workers transitioning to new jobs. 

Generally, government agencies on the local to federal levels will have many pre-qualified WOTC job seekers available. Of course, it isn’t required to find someone pre-certified to claim your WOTC, but it certainly helps in the paperwork department! Some federal government agencies which can supply WOTC employees are the Department of Corrections or the Veterans Administration.

Where can you claim the Work Opportunity Tax Credit?

To apply for certification that qualifies a new hire for one of these tax credits, employers only need to complete these forms:

1. IRS Pre-Screening Notice Form 8850
2. Individual Characteristics Form 9061

These forms must be sent to an employer’s state workforce agency within 28 days of the eligible employee beginning work. To simplify the process, connect with a tax professional. He or she can help you maximize your benefits from the WOTC.