Federal Work Opportunity Tax Credit
The work opportunity tax credit (WOTC) program is a federal government initiative designed to increase employment opportunities for people who typically experience certain barriers to employment, such as veterans, public assistance recipients, or ex-felons. The WOTC can range from $2,400 to $9,600 for each qualified new hire, depending upon the new hires WOTC target group. There are currently 14 different target categories under which an employee may qualify.
The employer receives a federal income tax credit that reduces its federal tax liability, and unused credits can be carried back one year and carried forward for 20 years.
- Employer must have a federal tax liability to use the WOTC
- WOTC can offset regular tax and AMT (Alternative Minimum Tax)
Reducing a company’s federal income tax liability reduces a company’s cost of doing business, and participation in the WOTC program may help fund other projects, or even assist in the expansion of your business or its service offerings.
|Estimated Annual Benefit For A Business Participating In The WOTC Program|
|INDUSTRY||ANNUAL BENEFIT RECEIVED BY BUSINESS|
|100 Hires||500 Hires||1,000 Hires|
|Food & Beverage||$14,400||$72,000||$144,000|
- The credit is equal to a percentage of the eligible employee’s wages.
- WOTC encourages employers to hire from specific targeted groups.
- Employee must work at least 120 hours for employer to receive credit.
- Maximum WOTC is generally $2,400 per employee (40% of the first $6,000) over the first year of employment. However, the Veterans with a Service-Connected Disability target group does allow for a maximum credit of $9,600.
- Employee must complete IRS Form 8850 on or before starting the job.
- Form 8850 must be postmarked within 28 days of start date and sent to the state Department of Labor for certification.
- WOTC law contains a sunset date which has been amended several times over the life of the program.
- Many states have credits that piggyback on the WOTC.