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 credit amount for WOTC can range from $1,200 to $9,600 for each qualified new hire, depending upon the new hires' WOTC target group.
The employer receives a federal income tax credit that reduces its federal income tax liability. The business must have tax liability to use the credits. Unused credit can be carried back one year and carried forward for 20 years.
|Estimated Annual Benefit for a Business Participating in the WOTC Program|
|INDUSTRY||ANNUAL BENEFIT RECEIVED BY BUSINESS|
|500 Hires||1,000 Hires||5,000 Hires|
|Food & Beverage||$72,000||$144,000||$720,000|
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Federal WOTC Program Details
- 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
- 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.
- 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.
Qualification Categories – Target Groups
Below are details of the target groups. Please note that they are only provided for your reference to better understand how an individual qualifies for the program. The new employee must belong to one of the following WOTC target groups.
|VETERAN TARGET GROUPS||MAX CREDIT|
|Veterans with a service-connected disability who have been unemployed for at least 6 months in the past year||$9,600|
|Veterans with a service-connected disability and hired within 1 year of their discharge/release date||$4,800|
|Veterans who have been unemployed for at least 6 months||$5,600|
|Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits||$2,400|
|Veterans who have been unemployed for at least 4 weeks but less than 6 months||$2,400|
|NON-VETERAN TARGET GROUPS||MAX CREDIT|
|Temporary Assistance for Needy Families (TANF) recipients||$2,400|
|Long-Term Family Assistance recipients who are members of a family that has received TANF benefits for at least 18 consecutive months||$9,000|
|Supplemental Security Income recipients||$2,400|
|Vocational rehabilitation referrals||$2,400|
|Designated community residents||$2,400|
|Summer Youth program participants who are 16 to 17 years old, work between May 1 and September 15, and live in a designated community area||$1,200|
We look forward to helping you navigate the right route toward optimizing the WOTC for your business. To learn more or begin your application process, click here to contact a tax expert at CTI today.