Work Opportunity Tax Credit
Work Opportunity Tax Credit Summary:
- The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups, including those receiving long term unemployment benefits and who have consistently faced significant barriers to employment.
- Tax credits can range from $2,400 – $9,600. The exact amount depends on the employee’s specific target group and the hours they worked during the year.
- With the pandemic forcing many to be on unemployment for 27 or more consecutive weeks this gives many employers the opportunity to get this credit!
How the Work Opportunity Tax Credit works:
- Before you can claim the credit, employers must submit a completed Form 8850 to the State Workforce Agency within 28 days of employees’ start date. This is in order to certify that an individual is a member of the targeted group.
- It takes about 8-10 months on average to hear back.
- After the required certification is secured, taxable employers claim the tax credit as a general business credit on Form 3800 against their income tax.
Limitations on the Tax Credit:
- The credit is limited to the amount of the business income tax liability or social security tax owed.
- A taxable business may apply the credit against its business income tax liability, and the normal carry-back and carry-forward rules apply.
- For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.
What makes employees eligible for the Work Opportunity Tax Credit?:
- Employee must be apart of the targeted groups listed below.
- 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.)
Who is included in the WOTC targeted groups?:
- Qualified IV-A recipient
- Qualified Veteran
- Qualified Ex-Felon
- Designated Community Resident
- Vocational Rehabilitation Referral
- Summer Youth Employee
- Supplemental Nutrition Assistance Program (SNAP “food stamps”) recipient;
- Supplemental Security Income (SSI) recipient;
- Long-term Family Assistance recipient; and
- Qualified Long-term Unemployment recipient.