Are you leaving money on the table? The Work Opportunity Tax Credit (WOTC) is like free money.
WOTC provides a tax credit for companies that hire employees from designated target groups. Employers use WOTC to reduce federal income tax liability. (In HR circles, the acronym is pronounced as a word and rhymes with Yahtzee.)
The goal of the program is to help people who may otherwise have difficulty finding employment. It gives an incentive to businesses that hire these employees.
Each year, U.S. companies claim over $1 billion in WOTC.
- WOTC is the Work Opportunity Tax Credit.
- It is designed to incentivize employers to hire people who face barriers to employment.
- It gives an employer a tax credit for employing a member of a target group.
WOTC qualifying groups include:
- SNAP recipients
- TANF recipients
- Vocation rehabilitation referrals
- Designated community residents
- Qualified summer youth employees
The program is underutilized. In some industries, one in five employees is eligible. Yet many employers don’t apply.
Does It Benefit The Employee?
The employee benefits by having a job. The status of the employee qualifies you. You get the tax credit.
Can All Types Of Companies Qualify?
Yes. This program isn’t dependent on business size or industry.
What If I Am A Non-Profit?
Non-profits can claim the credit against Social Security taxes.
What Do I Need To Do To Claim The Credit?
WOTC is a federal program administered at the state level. Before you can claim the credit, you apply with your state’s department of workforce services. To do that, you file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
If an employee qualifies, you claim the credit on your company’s federal tax return. The credit is based on:
- The employee’s earnings
- The number of hours the employee worked
How Do I Know If An Employee Qualifies?
The employee provides information during new hire paperwork. Participation is voluntary. The employee only provides the information if they choose to.
After hiring a new employee, you ask them to complete a questionnaire. The form gathers the information necessary to determine their status. You fill out a form using the answers they listed. Send the form to your state’s workforce agency. The agency will respond with verification that the employee qualifies.
When Do I Claim The Credit?
At the end of the employee’s first year of employment, you submit a form with your taxes.
What Is The Average Credit Per Employee?
The average WOTC credit is about $1200 per employee. The maximum credit is over $9,000 if all conditions are met.
You need to submit the form within 28 days of their first day of work.
Can I Carry Forward WOTC Not Used?
Yes, the rules are the same as those for general business credits.
Here’s Where It Gets Complicated
The amount of the credit depends on which targeted group the employee belongs to.
The number of hours the employee works during the year also affects the amount. You can earn a 25% credit if the employee worked at least 120 hours. This jumps to 40% if the employee worked 400+ hours.
How Much Can I Claim?
You are eligible for up to a 40% credit on the first $6,000 in wages.
What’s The Most Important Thing To Know About WOTC?
You have to file an application during the hiring process. You have 28 days from the first day of work. You can’t file retroactively.
Automated WOTC Is Easy With WorkforceHUB
WorkforceHUB has a built-in WOTC questionnaire. It’s part of the onboarding workflow. With one click, you decide whether or not to include the questionnaire with other new-hire documents.
SwipeClock WorkforceHUB partners handle everything for WOTC. After the new hire completes the questionnaire, we take over. You only pay a fee if you receive a credit. Don’t miss out on WOTC for 2019.
By Liz Strikwerda