Work Opportunity Tax Credit (WOTC): Your Forgotten Tax Benefit
The Work Opportunity Tax Credit (WOTC) is a credit to employers who hire certain targeted groups of employees and is based on a percentage of the wages paid to those employees. As an employer, federal tax credits like WOTC can offer numerous benefits to the business and the community. These groups include workers who may face significant barriers to gaining employment. The nine-targeted groups include vocational rehabilitation referrals, qualified ex-felons, families receiving benefits under the Temporary Assistance to Needy Families, long-term family assistance recipients, designated community residents, families in the food stamp programs, qualified SSI recipients, qualified summer youth, and qualified veterans. In addition, “qualified long-term unemployment recipients” was recently added.
Here are some other things you should know about WOTC.
- Employers can earn a tax credit equal to 25% or 40% of the new employee’s first year wages. 25% for 120 hours worked, or 40% for a minimum of 400 hours worked in the first year.
- The process for WOTC begins once a job offer is extended to a potential hire. The remainder of the application is completed at the time of hire on Form 8850.
- Appropriate application forms must be submitted to the state workforce agency or employment agency, not the IRS or Department of Labor, within 28 days of the employee’s start date.
- Former employees, company majority owners, or employer relatives or dependents are ineligible for the tax credit.
- The employer claims the tax credit with the filing of their respective tax return for that year on Form 5884.
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