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.
How much businesses can save
The credit amount for WOTC can be up to $9,600 for each qualified new hire, depending upon the new hires' WOTC target group. The credit is equal to a percentage of the eligible employee’s wages, and the employee must work at least 120 hours for the employer to receive credit.
WOTC target groups
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|
When to claim the credit
- Employers claim the tax credit against federal taxable income for the year that they “realize” the credit, that is, the year that the credit was awarded, not the year that the employee was hired.
- WOTC is non-refundable, meaning the business must have a tax liability against which to use the credit.
- Unused credit can be carried back one year and carried forward for 20 years.
How to claim the credit
- 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.