On December 20th Congress signed into law an end-of-year spending and tax extension package that extended the Work Opportunity Tax Credit (WOTC) through the end of 2020. Initially the credit was set to expire on January 1st, 2020, but the extension has allowed employers to continue to receive tax incentives by hiring disadvantaged employees.

Originally enacted in 1996, and subsequently extended multiple times, WOTC is a federal tax credit that allows employers who hire individuals from certain groups that have consistently faced barriers to employment such as veterans, ex-felons, or SNAP recipients.

This week we’ll be discussing the WOTC program, how to file for it, and how much money you can be saving by implementing a WOTC program in your business.

How WOTC works

As stated above WOTC is a federal tax incentive that allows you to receive tax credits when you hire individuals from certain targeted groups who have consistently faced significant barriers to employment.

In order to qualify for WOTC, you must obtain certification that the employee is a member of the targeted group, before the you may claim the credit. You can receive tax credits up to $9,600 per qualified new hire, depending upon the new hire’s WOTC target group. The credit is equal to a percentage of the employee’s wages, and the employee must work at least 120 hours for you to receive the credit.

There are two ways that your business can obtain the tax credit:

• Qualified employees can obtain a conditional certification form from a state or local workforce agency, and once hired, their employers complete a certification request form.
  
  
• A certification request form (Form 8850) and an individual characteristics information form (ETA Form 9061) if a new employee is deemed eligible.

For either method Form 8850 will be filed with their respective state workforce agency within 28 days after the eligible employee begins work.

WOTC target groups

The following is a table of what the federal government considers a targeted group and the maximum amount of tax credit that can be received per employee:

*Based on an employee who has worked at least 400 hours in the first year of employment

The above calculations are based off the maximum amount that you can receive from the tax credit. The amount of the credit is calculated as a percentage of qualified wages paid to the employee during their first year of employment.

You may claim a credit equal to 40% of the employee’s qualified wages if the employee works at least 400 hours during the first year of employment. If the employee works less than 400 hours, but at least 120 hours, then you can claim a credit equal to 25% of the employee’s wages.

As you can see participating in a WOTC program can be quite advantageous in the tax breaks that it provides. Not only can WOTC potentially save you money on new hires, but it also can end up helping you if you’re facing a labor shortage, not to mention assisting groups of people who need help securing jobs!

If you are not currently administering a WOTC program in your business then you are missing out, as employers in 2018 obtained 2.2 million WOTC certifications equating to over a billion dollars in federal tax credits!

Unsure if an employee fits into one of the above categories? Don’t know where to begin starting a WOTC program for your business? Let SolveHR take the headache out of human resources so you can focus on what matters—growing your business!