- Posted by: Winter Green-Ike
- Category: Payroll & Taxes, Small and Mid-Sized Business
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Originally enacted in 1996, and subsequently extended multiple times, WOTC is a federal tax credit that allows employers who hire individuals from certain groups that have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:
|Veteran Target Groups||Max Credit*|
|Veterans with a service-connected disability who have been unemployed for at least 6 months in the past year||$9,600|
|Veterans with a service-connected disability and hired within 1 year of their discharge/release date||$4,800|
|Veterans who have been unemployed for at least 6 months||$5,600|
|Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits||$2,400|
|Veterans who have been unemployed for at least 4 weeks but less than 6 months||$2,400|
|Non-Veteran Target Groups||Max Credit*|
|Temporary Assistance for Needy Families (TANF) recipients||$2,400|
|Long-Term Family Assistance recipients who are members of a family that has received TANF benefits for at least 18 consecutive months||
|Supplemental Security Income recipients||$2,400|
|Designated community residents||$2,400|
|Summer Youth program participants who are 16 to 17 years old, work between May 1 and September 15, and live in a designated community area||
*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!
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Written by: Matthew Muriel
Meet Matthew! Matthew is our content writer and has been working with us for a year. He enjoys working for SolveHR because it allows him to practice his copywriting and allows him to build experience in his fledgling career. Matthew studied at the University of Texas at San Antonio and earned his degree in English with a concentration in Professional Writing. He values learning new processes in the HR industry and then conveying those ideas to the company’s clients. When he isn’t working, he enjoys reading nonfiction, with his favorite book that he recently read being The Gene by Siddhartha Mukherjee. If he could go anywhere in the world he would travel across the United States and visit all of the national parks.