What Is the Work Opportunity Tax Credit (WOTC) Program?
The Work Opportunity Tax Credit (WOTC) is a product of the federal government. The tax credit is offered to certain employers. It supports employers that invest in American jobseekers that face certain barriers when seeking employment opportunities. These employers can meet business obligations and claim a tax credit for hiring job seekers within the targeted group.
After hiring a new individual, employers have to apply for and get the certification. Once they are certified, they can claim WOTC as general business credit against income tax. If they are tax-exempt, they can claim it against payroll taxes.
What Are the Target Groups for WOTC?
Qualified ex-felons are those that businesses hire within a year of getting out of prison from a felony or being convicted for a felony.
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Qualified IV-A Recipient
Anyone who is part of a family that receives help under their state plan approved under title IV of the Social Security Act, part A in relation to TANF. The family must have received assistance for at least nine months in the 18-month period that ends on the date of hire.
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Vocational Rehabilitation Referral
A vocational rehabilitation referral is an individual with a mental or physical disability. Their employers’ get a referral about them while they still receive or have completed rehabilitative services and are pursuing:
- Programs issued under the Department of Veteran Affairs
- State plan approved through the Rehabilitation Act of 1973
- An Employment Network Plan through the Ticket to Work program
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Qualified Veteran
Qualified veterans are any of the following:
- They may be members of a family that received assistance through the Supplemental Nutritional Assistance Program for a minimum of three months in their first 15 months of being unemployed.
- Disabled veterans who qualify for compensation resulting from a service-related disability. They need to have been unemployed for a minimum of six consecutive or non-consecutive months.
- They may have been unemployed for at least four weeks but less than six months in the past year ending on their hiring date.
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Summer Youth Employee
Summer youth employees are:
- At least 16 but below 18 on May 1 or the date of hire, whichever comes later
- Only employed between May 1 and September 15
- A resident of an Empowerment Zone, renewal community, or enterprise community
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Designated Community Resident
On the date of hire, the designated community resident is
- Under 40 but at least 18 years old
- A resident of an enterprise community, renewal community, or empowerment zone
- A resident of these areas after employment
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Long-Term Family Assistance Recipient
Long-term family recipients are individuals whose families met one of the following conditions at the time of their hiring:
- Got assistance for 18 months after 8/5/1997, and it has been less than two years since the earliest of such ended.
- Received assistance through the IV-A program for at least the last 18 consecutive months
- They stopped being eligible for the assistance due to a State or Federal law that limited the amount of time they could receive those benefits, and it hasn’t been over two years since the cessation.
Certification and Pre-Screening
Eligible employers have to file Form 8850, Certification Request for the Work Opportunity Credit, and Pre-Screening Notice. They must get certification within 28 days of hiring the eligible worker.
On the first page of Form 8850 is the work opportunity tax credit questionnaire. It is meant to find out if applicants have participated in government assistance programs or military service. It also asks about the applicant’s recent unemployment and other important questions. Employers need to contact their state workforce agency if they have any specific questions regarding Form 8850.
The credit you receive is limited to the Social Security or business income tax owed. If a business is taxable, it can apply the credit against business income tax liability. The traditional carry-back and carry-forward rules are still applicable.
The WOTC program is great as it supports targeted employees and makes it easier for them to shift from dependency to economic self-sufficiency. By earning an income, they can contribute to the country’s taxes. Employers can hire as many qualified employees as they want, and there isn’t much paperwork to worry about. They can hire from different qualifying groups as they want.