Work Opportunity Tax Credit: How Your Hiring Efforts May Help You Qualify

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If you’re seeking to fill positions within your business or organization, you could benefit from a valuable tax credit based on the individuals you hire. The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain targeted groups who have faced significant barriers to employment. It’s a tax-worthy benefit to keep in mind, as the credit is worth as much as $2,400 for most eligible employees (higher or lower for certain employees). 

WOTC Explained

This tax credit was originally established as a temporary tax credit in 1996 but has been extended multiple times due to its benefit to employers, including the opportunity to promote workplace diversity and help workers challenged with securing employment. Under the current tax rule, the credit is limited to eligible employees who begin work for an employer before Jan. 1, 2026, unless new legislation is passed. 

Qualifying Targeted Groups

Generally, an employer is eligible for the credit only for qualified wages paid to members from one of the following targeted groups: 

  1. Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
  2. Qualified veterans
  3. Qualified ex-felons
  4. Designated community residents
  5. Vocational rehabilitation referrals
  6. Qualified summer youth employees
  7. Qualified members of families in the Supplemental Nutritional Assistance Program
  8. Qualified Supplemental Security Income recipients
  9. Long-term family assistance recipients
  10.  Long-term unemployed individuals

Pre-Screening and Certification

To claim the WOTC, an employer must first get certification that the person hired is a member of one of the targeted groups above. To satisfy the requirement to pre-screen a job applicant, on or before the day a job offer is made, a pre-screening notice must be completed by the job applicant and the employer. 

To confirm the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes the job applicant is a member of a targeted group, the date the applicant gave information about being a targeted group member must be a date that is the same as, or before the date the applicant was offered job. The dates that the job applicant was hired and started the job must be on or after the dates the applicant gave information and was offered the job.

Some individuals have a conditional certification issued by partnering agencies or State Workforce Agencies (SWA). If an employer does not receive a certification on or before the day the individual begins work, the employer may request certification by submitting Form 8850, Pre-Screening Notice and Certification Request for the WOTC to their state agency, within 28 days after the eligible worker begins work.

Credit Requirements 

There are several requirements to qualify for the credit. For example, each employee must have completed a specific number of hours of service for the employer. Also, the credit isn’t available for employees who are related to, or who previously worked for, the employer.

There are different rules and credit amounts for certain employees. The maximum credit available for first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600, or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.

For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.

An eligible employer claims the WOTC on its federal income tax return. The credit value is limited to the business’s income tax liability.

Here to Help 

There are additional rules and requirements to the WOTC, so it’s important to work with a business tax pro who can help you identify whether the WOTC is beneficial for you. In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers hiring from targeted groups, the credit can be worthwhile. To further explore this credit or to obtain assistance with your overall tax needs, our business tax pros are here to help.

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