Are you taking advantage of the Work Opportunity Tax Credit (WOTC)? If you’re not, your company is missing out.U.S. employers reap more than $1 billion in federal tax credits every year from the WOTC (pronounced “Watt-See”) program. But many employers don’t know about it or understand how it works. That’s a shame, because there is no limit to how much your company can earn in WOTC tax credits—and you may already be meeting WOTC requirements through your current hiring practices.
Before you make your next hire, learn about one of the best-kept secrets of the U.S. tax code. Put WOTC to work for you.
How the Work Opportunity Tax Credit Program Works
WOTC is a federal incentive program that encourages businesses to hire people belonging to certain “target groups”--groups that face longstanding barriers to finding employment. Employers of all sizes are eligible for WOTC tax credits.
In a nutshell, when an employer hires an individual belonging to one of the specified target groups and completes the WOTC tax forms as required, they earn a tax credit equal to 25% or 40% of the new employee’s first year wages, up to pre-set maximums. The maximum varies by target group, but could be as much as $9,600. Yes, a $9,600 tax credit for a single hire!
Know the WOTC Target Groups
Broadly speaking, the WOTC target groups are:
- Veterans – including unemployed and disabled veterans
- TANF (Temporary Assistance for Needy Families) recipients
- SNAP (food stamp) recipients between the ages of 18-39
- Designated Community Residents (DCRs) – 18-39 year olds who reside within federally-designated Rural Renewal Counties or Empowerment Zones
- Vocational Rehabilitation Referred Individuals – i.e., those with disabilities who’ve completed certain rehabilitative services programs
- Ex-Felons – hired within one year after conviction or prison release
- Supplemental Security Income recipients
- Summer Youth Employees –16-17 year olds residing in Empowerment Zones
- Qualified Recipients of Long-Term Unemployment Compensation
WOTC Tax Credit Amounts
The amount of the tax credit employers can claim depends on three things: the target group the hired employee belongs to, the number of hours worked during the first year, and the maximum tax credit for their target group. Maximum tax credits range from $1,200 for summer youth to $9,600 for some disabled veterans.
For all target groups except long-term TANF Recipients, employers earn 25% of the employee’s first year earnings if he/she worked at least 120 hours and 40% of first year earnings if he/she worked at least 400 hours. For long-term TANF recipients, tax credits vary and can also be earned during the second year of employment.
For more detailed information, see the U.S. Department of Labor’s WOTC program summary.
WOTC Forms: How the Application Process Works
To apply for tax credits, employers and new hires must complete two WOTC forms:
- IRS Form 8850
- ETA Form 9061 or 9062
Form 8850 must completed at the time of hiring and both forms must be submitted to the applicable state workforce agency within 28 days of the employee’s start date. States use various methods to accept WOTC forms; employers must receive confirmation in order to qualify for tax credits.
Obviously, for employers to take full advantage of WOTC, careful timing and recordkeeping are key.
“Wots” Keeping You from WOTC?
While the WOTC tax credit application process is straightforward, many employers have shied away from it entirely. Some feel that the recordkeeping is “one more thing” for an already overloaded HR department to do. Others worry about accidently engaging in discriminatory hiring when asking applicants to complete Form 8850 (even though it doesn’t ask for information regarding race, color, religion, etc.).
Yet Work Opportunity Tax Credits can truly improve your bottom line, and it’s a waste to leave them on the table, especially if you operate on slim margins.
If your company has the HR resources, it’s worth learning the ins and outs of WOTC so you can take advantage of it. And if you don’t, consider offloading WOTC administration to a third-party specialist that can manage the program for you.
Earn WOTC Tax Credits—No Sweat!
If you had EPAY HCM, you could take advantages of WOTC tax credits without adding to your HR workload. We partner with a national WOTC specialist that assures the program is administered meticulously.
Our system ensures that WOTC forms are served up during the hiring/onboarding process. Once they’re completed, our specialist takes it from there, submitting the tax forms to the appropriate agency and overseeing each step.
As an EPAY client, you could view your updated WOTC tax credits every quarter on your dashboard, and you’d receive the tax forms needed to take your WOTC tax credits.
There is no additional upfront fee for this optional service; our WOTC specialist retroactively charges a percentage of the employer’s tax savings for its services. Depending on the nature of your workforce and business, your WOTC tax credits just might pay for the cost of your new EPAY HCM system!
This is one of the many ways EPAY HCM works to make HR easier and more cost-effective for employers managing an hourly workforce. Learn more—take our 2-Minute Tour.