As an employer, have you ever thought about the benefits of hiring individuals from certain target groups? Not only can it help increase diversity and inclusion in your workplace, but it can also make you eligible for a Work Opportunity Tax Credit (WOTC). The WOTC is a federal tax credit that provides an incentive for employers to hire individuals from targeted groups who have historically faced barriers to employment. In this article, we will explore what the WOTC is, who is eligible for it, how to apply for it, and how it can benefit both employers and employees.
What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that provides an incentive for employers to hire individuals from certain target groups who face significant barriers to employment. The credit is available to employers who hire individuals from target groups such as:
Long-term unemployed individuals: Individuals who have been unemployed for 27 weeks or more and are receiving unemployment benefits.
Temporary Assistance for Needy Families (TANF) recipients: Individuals who have received TANF benefits for any 9-month period within the past 18 months.
Veterans: Individuals who have been unemployed for at least 4 weeks within the past year and have a service-connected disability, among other criteria.
Ex-felons: Individuals who have been convicted of a felony and have completed their sentence or been released on parole or probation within the past year.
Individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits: Individuals who have received SNAP benefits for at least 6 of the past 12 months.
Designated community residents: Individuals who live in an empowerment zone, enterprise community, or renewal community.
Vocational rehabilitation referrals: Individuals with a physical or mental disability who have completed or are undergoing rehabilitation or other services through a state-certified agency.
Who is eligible for the WOTC?
To be eligible for the WOTC, the individual must be a member of one of the target groups listed above and must be hired by the employer between January 1, 2021, and December 31, 2025. The employer must also obtain certification from the appropriate state agency that the individual is a member of a targeted group. The certification must be obtained within 28 days of the individual’s start date.
How to apply for the WOTC?
To apply for the WOTC, the employer must complete and submit IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the appropriate state agency. The form must be submitted within 28 days of the individual’s start date. The state agency will then review the form and certify that the individual is a member of a targeted group. The employer can then claim the WOTC on their federal tax return.
How much is the WOTC worth?
The amount of the WOTC varies depending on the target group the individual belongs to and the number of hours worked.
For example, the credit for hiring a long-term unemployed individual can be up to $2,400 for each eligible employee.
The credit for hiring a veteran with a service-connected disability can be up to $9,600 for each eligible employee.
The credit for hiring an ex-felon can be up to $2,400 for each eligible employee.
The credit for hiring an individual receiving SNAP benefits can be up to $2,400 for each eligible employee.
The credit for hiring a designated community resident can be up to $2,400 for each eligible employee.
The credit for hiring an individual referred by a vocational rehabilitation agency can be up to $2,400 for each eligible employee.
The maximum credit amount is based on a percentage of the first-year wages paid to the employee, which can range from 25% to 40% depending on the target group and the number of hours worked.
Benefits of the WOTC for Employers
There are several benefits that employers can gain from taking advantage of the WOTC:
1. Financial savings:
Employers can receive a tax credit of up to $9,600 per eligible employee, which can help reduce their tax liability.
2. Increased diversity and inclusion:
By hiring individuals from target groups, employers can increase the diversity and inclusion of their workforce, which can lead to a more creative and innovative workplace.
3. Improved retention rates:
Employees who are hired through the WOTC program may be more loyal and committed to their employer, as they have faced barriers to employment in the past and are grateful for the opportunity.
4. Increased productivity:
Hiring employees who are motivated and committed to their work can lead to increased productivity and a better bottom line for the employer.
Benefits of the WOTC for employees
Employees who are hired through the WOTC program can also benefit in several ways:
1. Increased employment opportunities:
Individuals from target groups who face barriers to employment may have difficulty finding a job. The WOTC program can help provide them with increased employment opportunities.
2. Improved financial stability:
By obtaining a job, employees can improve their financial stability and reduce their reliance on government assistance programs.
3. Increased job skills:
Employees who are hired through the WOTC program can gain valuable job skills and work experience that can help them advance in their careers.
4. Improved self-esteem:
By obtaining a job, employees can improve their self-esteem and sense of self-worth.
Final Words
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that provides an incentive for employers to hire individuals from certain target groups who face significant barriers to employment. The WOTC program can provide numerous benefits for both employers and employees, including financial savings, increased diversity and inclusion, improved retention rates, increased productivity, increased employment opportunities, improved financial stability, increased job skills, and improved self-esteem. Employers who are interested in taking advantage of the WOTC program should consult with their tax advisor or accountant to determine eligibility and ensure compliance with all program requirements.
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FAQ
The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to encourage businesses to hire workers from targeted groups that have traditionally faced significant barriers to employment.
There are several targeted groups that qualify for the WOTC, including long-term unemployed individuals, veterans, ex-felons, individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits, and individuals with disabilities.
The amount of the tax credit varies depending on the target group of the employee hired and the number of hours worked. The credit ranges from $1,200 to $9,600 per employee hired.
To claim the WOTC, employers must complete IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, within 28 days of the employee’s start date. Employers must also submit ETA Form 9061 or ETA Form 9062 to their state workforce agency within 28 days of the employee’s start date.
