You may not have heard of the Work Opportunity Tax Credit. “WOTC” as it is known is a tax credit for employers who hire individuals from target groups who have faced consistent barriers to employment. It can provide a tax credit of between $2,400 – $9,600 depending on the category. Based on our experience 10-15% of all new hires may qualify.
WOTC Target Groups
When you hire an individual from one of these target groups, you may be eligible for a tax credit:
- Qualified Veteran.
- Long-term TANF Recipient.
- Short-term TANF Recipient.
- Supplemental Nutrition Assistance Program (SNAP) Recipient.
- Designated Community Resident.
- Vocational Rehabilitation Referral.
- SSI Recipient.
- Long-Term Unemployment Recipient.
Minimum Employment or Retention Period
In addition to belonging to one of the groups outlined above, all new employees must work a minimum of 120 hours for the employer to qualify to claim the WOTC.
Value of WOTC Tax Credits
The actual value of the tax credit you receive per employee can vary. Calculating the value of the tax credit is tied to three factors:
- The target group. Qualified Veterans can earn up to $9,600 in tax credits, and Long Term TANF Recipients are eligible up to $9,000 over two years.
- The amount of hours worked. Employee must work between 120-400 hours to be eligible for a 25% tax credit of the first $6,000 in wages, and if worked over 400 hours eligible for a 40% tax credit of the first $6,000 in wages.
- The amount of wages earned during the above timeframe.
The average tax credit is $2,400.
How to Claim WOTC Tax Credits
WOTC is claimed by first having the new employee complete the WOTC questionnaires which include IRS forms 8850, and 9061. These completed forms are sent to your state’s Department of Labor for certification. Once certified, you can calculate the tax credit.
Qualified tax-exempt organizations will claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, as a credit against the employer’s share of Social Security tax. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.
WOTC as a Value-Add
iRecruit for-profit customers can add the WOTC Tax Credit Screening Service to their accounts, which can easily help iRecruit pay for itself. We recommend you use the WOTC service with your iConnect, Employee Onboarding. We offer the screening service for a small contingency fee. Please contact us if you have any questions.
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