How the WOTC Provides Employment-Based Tax Incentives for the Hospitality Industry

Written by Corporate Tax Incentives. Updated Jan 26, 2017.

coins-1523383_1280.jpgThe Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals who fall into designated target groups and typically face significant barriers to employment.  These WOTC` target groups include individuals on government aid such as the Supplemental Nutrition Assistance Program or SNAP (also known as food stamps), Temporary Assistance for Needy Families or TANF (also known as welfare), disability, etc., as well as ex-felons, disabled or unemployed veterans and individuals who have been on long-term unemployment.  Depending upon the target group, an employer can receive up to $9,600 in potential tax credits per employee.  Under the PATH Act, the program was extended until December 31, 2019.

The WOTC can be a very lucrative program for employers within the hospitality industry due to the nature of the industry.  Below are three ways the WOTC program is beneficial for the hospitality industry: 

1.  Hospitality is typically a labor intensive industry and most likely already hiring individuals in one or more of the target categories. It is not uncommon for employers within this industry to average $1,800 per qualified employee and to experience a qualification rate of around 20%.  In order for an employer to take advantage of the WOTC, they must screen each new hire and submit Form 8850 within 28 days of the new hire’s start date.  Prior to claiming the tax credit with the IRS, an employer must request and receive certification from its’ State Workforce Agency (SWA), stating that the new hire is a member of at least one of the WOTC target groups.  Because new hires are already completing paperwork such as W-4s and I-9s as part of their onboarding process, incorporating WOTC screening at this time can be very effective.  Fortunately, with advancements in technology, the WOTC program is much less administratively burdensome than it has been in the past.  With voice and e-signature technology, employees can sign their Form 8850’s using their voice or electronically.  This drastically reduces the burden on hiring managers because the need to deal with paperwork is eliminated; thus resulting in higher qualification rates and higher tax credit amounts.

2.  Employers within the hospitality industry typically experience high turnover which also means they are hiring more new employees on an annual basis. The WOTC program is great for industries that experience high turnover because there is no limit to the number of individuals an employer can hire in order to qualify to claim the credit.  The employees only have to work a minimum of 120 hours to generate a credit.

3.  Utilizing tax credit programs like the WOTC may help employers with increasing labor and operating costs – dropping more money to the bottom line. Credits generated from the program may enhance cash flow to your business and can be used to offset the effect of cutbacks allowing funding for other special projects. WOTC can further allow HR and tax departments to become revenue generating areas. Not only can the WOTC offset the employer’s federal income tax liability, because it is an eligible general business credit, it may also offset the employer’s Alternative Minimum Tax (AMT).  Unused credits may be carried forward for twenty years and be carried back for one year.  Also, data used as part of the WOTC program can also be used to assist in qualifying employers for other state tax credits and incentives. 

For more information on how to qualify for the WOTC in your state, download your free guide below.

Elevate Your Tax Savings with WOTC

Topics: Employment Incentives, WOTC

Corporate Tax Incentives

Written by Corporate Tax Incentives

CTI is a tax incentives specialty firm that secures greater tax credits for businesses with our proven project methodology and unparalleled personalized service. For almost 20 years, our elite tax professionals have proactively engaged clients to deliver unmatched value with transparency and efficiency thorough secure in-house software, comprehensive audit-ready deliverables, and 24x7 access to real-time dashboards. We are tax consultancy experts passionate about maximizing credits and incentives for powering the success of your business.