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Don’t Forget About Your WOTC Tax Credit in 2021

January 25, 2021 - minute read

As employers seek to support their business’s recovery from the past year, it may come as a relief to learn that the President has signed a bill to reinforce government initiatives and provide economic aid to businesses in response to the COVID-19 pandemic. That includes expanding or extending relief programs like the Work Opportunity Tax Credit (WOTC) for five more years.

WOTC was originally established under the Small Business Job Protection Act of 1996 and has been extended multiple times since. With this latest installment underway, let’s explore what it is, why your hourly workforce business needs it, and how to take advantage of it this year!

What Is the Work Opportunity Tax Credit (WOTC) Again?

The Work Opportunity Tax Credit (WOTC), now extended through December 31, 2025, is a tax credit available for employers hiring individuals from certain targeted groups facing barriers to employment— often people with criminal histories, who are military veterans, or face certain other types of long-term unemployment.

The WOTC enables companies to receive between $1,200 to $9,600 in tax credits for each qualifying employee hired, with no limit on the number of qualifying individuals. To put it into perspective, that’s about $1 billion in tax credits claimed each year, according to the Department of Labor. However, there is a catch: hires must work at least 120 hours during the first year of employment to qualify.

The total hours worked will tell you the percentage of qualified wages that will be credited in the first year. This can be broken down as follows:

  • Up to 120 Hours / 0%
  • 120 Hours and up to 400 Hours / 25%
  • 400 Hours or More / 40% (maximum percentage)

The statutory limit of wages that are WOTC-eligible varies by the characteristics of the worker. The most common wage ceiling is $6,000 (for a maximum credit of $2,400), though some subpopulations are eligible for a higher or lower maximum. For more information on the various groups and qualifications, check out our other blog, “WOTC: The Hidden Tax Credit You Didn’t Know.”

WOTC Tax Credit for Hourly Workforces

Many WOTC-eligible candidates apply for hourly jobs, making WOTC relief especially relevant for hourly workforce sectors. For employers in these high-turnover industries, embracing WOTC tax credits almost guarantees additional funds for your business and improved hiring results overall!

Consider how valuable WOTC could be for your business in 2021:

  • Participating could significantly reduce your corporate federal tax liability, and in some cases, even eliminate it.
  • You could gain additional financial relief during the ongoing COVID-19 pandemic and resulting industry crises.
  • WOTC tax credits impact lowering turnover within workforces overall, which means you would save time and money on your hiring (or re-hiring) process.
  • By investing in quality candidates who want to stick around, you boost productivity within your business and overall Human Capital ROI.
  • You’re helping disadvantaged job applicants secure sustainable employment during a time of rising unemployment, boosting employee loyalty and morale.

So, what’s your next step?

How to Take Advantage of WOTC

The process of receiving these tax credits can be a tricky one. Since states get involved to verify that new hires qualify, strong documentation is critical. In addition to hiring members of a targeted group and documenting that they have worked at least 120 hours, employers must file a Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit with the IRS and ETA Form 9061 or 9062 to your State Workforce Agency (SWA).

*Form 8850 must be 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. By following this process successfully, you can efficiently take advantage of the WOTC.

WOTC Benefits Without the Administrative Stress

Getting the most from WOTC benefits involves many challenges: analyzing potential hires for retention, documenting qualifying employees’ hours and wages to submit to SWAs, submitting the correct forms to the proper organizations, and maintaining all the administrative processes in-between. EPAY Systems’ Human Capital Management software and resources can help.

We partner with a national WOTC specialist to ensure your program is administered meticulously. Our system even ensures that WOTC forms are served up during the hiring/onboarding process! Once they’re completed, our specialist submits the tax forms to the appropriate agency and oversees things from there.

As an EPAY client, you can view your WOTC tax credits and appropriate forms each quarter.

The best part? There is no additional upfront fee for this optional service. This is one of the many ways EPAY works to make HR easier and more cost-effective for hourly workforces. Learn more—take our 2-Minute Tour.

Filed Under: Payroll & Tax