If you are currently taking advantage of the Work Opportunity Tax Credit (WOTC) or would like to further expand this credit opportunity, your payroll system’s onboarding process may be the key to unlocking even more significant financial and operational benefits. A reliable payroll system can also help streamline the overall process of collecting your WOTC information for tax purposes. 

What is WOTC?

The WOTC is a federal tax incentive designed to encourage employers to hire individuals from specific target groups who face barriers to employment. Taxable employers and qualified tax-exempt companies who hire someone that is a member of a WOTC target group can apply for a general business credit against their income tax. These individuals include: 

• 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

There's no limit on the number of employees you can hire from target groups, and the maximum credit amount that may be claimed depends on the number of hours the employee works during the first year of employment and second year for long-term TANF recipients, wages paid to the employee and the categorization of the employee's target group. Some exclusions apply to the list of WOTC target groups. Employers who rehire a former employee, a family member or dependent, or someone who will be a majority owner in the business may not be able to claim the tax credit for that individual (even if the individual is otherwise a member of an eligible target group). The DOL reports that employers can earn a tax credit of 25% to 40% of the new hire's applicable wages, with a maximum credit of up to $9,600. To learn more about these specific groups, the IRS created a FAQ and information page specific to WOTC. 

Integrating WOTC Screening During Onboarding

To claim the credit, both the employer and applicant must complete IRS Form 8850, the Pre-Screening Notice and Certification Request for the Work Opportunity Credit, and submit it to the appropriate State Workforce Agency within 28 calendar days of the employee’s start date. The process begins with screening applicants for WOTC eligibility and collecting the necessary information to complete the form, which must be done on or before extending a job offer.

Leveraging a screening solution in your payroll system during onboarding simplifies the form with plain language and skips irrelevant sections can make the process smoother. Mobile-friendly solutions compatible with multiple platforms are particularly effective in ensuring accessibility. 

WOTC screening can seamlessly integrate into two key stages of the onboarding process:

• Application screening: In the application phase, WOTC forms can be included as part of the candidate’s application process. Once the application is completed, a form can automatically appear, allowing you to determine if the applicant is potentially WOTC-eligible right away.
• Onboarding: Alternatively, screening can occur during the onboarding stage, which is the more common approach. In this scenario, the WOTC questionnaire is included alongside other onboarding forms, such as the I-9 and W-4, or even as part of the offer package, ensuring a smooth and comprehensive compliance process.

How We Can Help

We seamlessly integrate WOTC screening into your existing onboarding process, enhancing compliance and streamlining data collection. Our provider simplifies the WOTC questionnaire with plain language, skipping irrelevant sections to ensure applicants complete the form quickly and accurately. Once the form is completed, we transmit the necessary payroll data to the WOTC provider, enabling them to calculate the credit amount and submit the application for the tax credit.