Employer Resource Series: Work Opportunity Tax Credit (WOTC)

If you’ve yet to tap into this credit, it’s high time to initiate the certification process for your new hires without delay. The potential financial gains are significant and immediate.

The Work Opportunity Tax Credit (WOTC) stands as a federal tax credit designed to incentivize employers to invest in individuals who have encountered persistent employment barriers. Initially introduced as a one-year credit in 1996, the WOTC has undergone multiple revisions and extensions since its inception. The current authorization for the program extends until December 31, 2025.

This program aims to encourage employers to enhance their workforce by engaging with specific disadvantaged groups. However, research indicates that its impact on hiring choices and retention has been limited. Studies suggest that some employers avail the tax credit for hiring individuals they would have brought onboard even without the credit.

Despite increased awareness about the WOTC, certifications remain considerably underutilized in comparison to the eligible participant pool. Astonishingly, research estimates that up to 80 percent of potential tax credits go unclaimed each year. This could be due to misconceptions about workforce eligibility.

For individuals falling within the targeted groups, the maximum credit stands at 40 percent of the first $6,000 in wages during the initial year of employment, equating to $2,400. The WOTC permits for-profit employers to claim a credit against their federal income tax obligations when hiring individuals from these eligible groups, as specified in federal law.

These groups encompass:

  • Formerly incarcerated or previously convicted individuals.
  • Recipients of state assistance under part A of title IV of the Social Security Act (SSA).
  • Veterans.
  • Residents in empowerment zones or rural renewal counties.
  • Individuals referred to employers following completion of rehabilitation plans or programs.
  • Individuals from families receiving supplemental nutrition assistance under the Food and Nutrition Act of 2008.
  • Recipients of supplemental security income benefits under title XVI of the SSA.
  • Individuals from families receiving state assistance under part A of title IV of the SSA.
  • Individuals facing long-term unemployment.

Before employers can claim this tax credit, a certification process must be successfully completed. Once certified, taxable employers can apply the WOTC as a general business credit against their income taxes, while tax-exempt employers can leverage it against their payroll taxes.

Here are some helpful links for employers:

If you’re interested in the program, but don’t feel like there’s enough time on your plate to navigate the applications, reach out to The People Perspective to talk about how we can help!

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