Being a business owner often means you’re in a position to give back to your community. One of the best ways to help out is to hire disadvantaged people in need of a steady job. By doing so, your good deed can be rewarded with a tax credit.
The Work Opportunity Tax Credit (WOTC) is available to businesses that employ certain people who often have difficulties finding a job. In order to take advantage of the WOTC, your business must hire people from specific groups and meet other requirements. In this blog post, we’ll provide an overview of what to know about this tax credit.
Work Opportunity Tax Credit (WOTC) target groups
To qualify for a WOTC, you must hire employees from any of the “target groups” listed below:
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Veterans
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Recipients of Temporary Assistance for Needy Families (TANF)
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Recipients of Supplemental Nutrition Assistance Program (SNAP) – Commonly referred to as food stamps
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Designated Community Residents (DCR) – Residents of communities that qualify as Rural Renewal Counties (RRCs) or Empowerment Zones (EZs)
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Vocational Rehabilitation (VR) referred individuals
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Ex-felons
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Supplemental Security Income (SSI) recipients
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Summer youth employees
Within each one of these groups, there are requirements the employee and/or business must meet. For example, a person qualifies as a veteran if they served on active duty for more than 180 days or were discharged due to a service-related disability.
Additionally, a person is considered a “summer youth employee” for WOTC purposes if they’re 16 or 17 years old, work between May 1 and September 15, and reside in an recognized Empowerment Zone. That means simply giving any teenager a summer job isn’t enough to qualify for the WOTC.
The Department of Labor website outlines the requirements that must be met for each target group.
How to calculate and claim a Work Opportunity Tax Credit (WOTC)
A business can earn a tax credit between $1,200 and $9,600 for each employee that meets the target group requirements outlined above. The exact amount depends on the employee’s specific target group and the hours they worked during the year.
It’s also important to note the employee must work at least 120 hours in their first year of employment. And the more hours they work, the higher the tax credit will be.
Once you understand and meet the requirements, you can claim your credit by completing the following forms:
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IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit)
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ETA Form 9061 (Individual Characteristics Form) or ETA Form 9062 (Conditional Certification Work Opportunity Tax Credit)
All forms must be completed by both you and the employee when they’re hired. You must submit these forms to the IRS and your state’s workforce agency within 28 days of the employee’s start date.
Work with a professional
The information outlined in this blog post in only an introduction to the WOTC. We recommend consulting with a tax professional so you can ensure you meet all the requirements and maximize the credit you receive.
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