WOTC - Work Opportunity Tax Credit

What is the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) benefits targeted workers and their employers. It helps workers become self-sufficient, by earning a steady income. The WOTC helps employers reduce the company’s income tax liability and lower their cost of doing business.

The Protecting Americans from Tax Hikes Act of 2015 (PATH) extended the WOTC program and empowerment zones through December 31, 2019.

How Much is the Tax Credit?

In general, the tax credit is 40% of the qualified wages during the employee’s first year of employment, if the employee works 400 hours or more. If the employee works between 120 hours and 400 hours, the tax credit is 25% of their qualified wages during the first year of employment. Qualified wages are usually limited to the first $6,000 the employee makes.

There is no limit on the number of qualified employees you can hire, but you can’t receive the tax credit for wages paid to your relatives or relatives of a major stockholder.

If your business is tax-exempt, you can use the WOTC by hiring qualified veterans and receiving a credit against your share of their social security tax.

4 Steps to Apply for WOTC

The process of applying for the WOTC begins during the job application process.

During the interviewing and application process, you can ask questions to determine if a candidate is a member of a WOTC targeted group. The Equal Employment Opportunity Commission (EEOC) gives WOTC employers a “federal laws defense”, which protects them from EEOC violations when inquiring about a targeted group member’s status. Only use that information for the WOTC application, and not as a deciding factor when hiring.

After deciding to hire a member of a WOTC targeted group, take the following steps to apply for the tax credit:

  1. By the day you make a job offer, have the applicant complete page 1 of Form 8850, Pre-Screening Notice and Certification Request for Work Opportunity Credit.
  2. After you’ve hired a member of a targeted group, complete page 2 of Form 8850.
  3. Complete Form 9061, Individual Characteristics Form (ICF). If a state workforce agency (SWA) or Vocational Rehabilitation agency has conditionally certified your new employee as a member of a WOTC target group, complete Form 9062, Conditional Certification, instead of Form 9061.
  4. Submit Forms 8850 and 9061 (or 9062) to your SWA. You must submit these forms within 28 calendar days of your employee’s start date.

WOTC Target Groups

WOTC offers a tax credit to employers who hire

  • designated community residents,
  • ex-felons,
  • qualified veterans,
  • Supplemental Nutrition Assistance Program (SNAP) recipients,
  • Supplemental Security Income (SSI) recipients,
  • summer youth employees,
  • Temporary Assistance for Needy Families (TANF) recipients, or
  • Vocational rehabilitation recipients.

If you rehire a former employee, you won’t qualify for WOTC again, no matter how long it’s been since the employee last worked for you.

Designated Community Residents

A designated community resident is 18 to 39 years old and lives in a rural renewal county or empowerment zone.

The maximum tax credit is $2,400.

Ex-Felons

You can receive the tax credit for someone who has been convicted of a felony, if their hiring date is within a year of their conviction or release from prison.

The maximum tax credit is $2,400.

Qualified Veterans

To be qualified, a veteran must

  • have been active in the military for more than 180 days,
  • have been discharged for a service-connected disability, or
  • not have had a period of active duty of more than 90 days that ended during the 60-day period before the hiring date.

They also must

  • be a member of a family that received SNAP benefits for three or more months during the last 15 months;
  • be disabled and entitled to compensation for a service-connected disability, and
    • was hired within one year of their discharge or release from active duty, or
    • was unemployed for at least six months during the previous year;
  • have been unemployed for
    • at least four weeks in the year ending on the hiring date, or
    • at least six months in the year ending on the hiring date.

Maximum Tax Credits

If the veteran’s family received SNAP benefits, the maximum tax credit is

  • $1,500, if the employee works at least 120 hours, or
  • $2,400, if the employee works 400 or more hours.

If the veteran is entitled to compensation for a service-connected disability and hired within one year of their discharge, the maximum tax credit is

  • $3,000, if the employee works at least 120 hours, or
  • $4,800, if the employee works 400 or more hours.

If the veteran is entitled to compensation for a service-connected disability and has been unemployed for at least six months during the last year, the maximum tax credit is

  • $6,000, if the employee works at least 120 hours, or
  • $9,600, if the employee works 400 or more hours.

If the veteran is unemployed for at least four weeks, the maximum tax credit is

  • $1,500, if the employee works at least 120 hours, or
  • $2,400, if the employee works at least 400 hours.

If the veteran is unemployed for at least six months, the maximum tax credit is $5,600.

SNAP Recipients

A SNAP recipient is eligible if

  • they’re between 18 and 39 years old, and
  • they’ve received SNAP benefits
    • for the six months ending on their hiring date, or
    • for at least three of the last five months.

The maximum tax credit is $2,400.

SSI Recipients

An SSI recipient is eligible if they’ve received SSI benefits for any month during the last 60 days.

The maximum tax credit is $2,400.

Summer Youth Employees

A summer youth employee is 16 or 17 years old, lives in an empowerment zone, and works between May 1 and September 15.

The maximum tax credit is $1,200.

TANF Recipients

Long-Term

A long-term TANF recipient is qualified if they have

  • received TANF benefits for at least the last 18 consecutive months,
  • received TANF benefits for at least 18 consecutive or non-consecutive months and are hired not more than two years after the end of the earliest 18 months, or
  • stopped being eligible for TANF payments during the past two years because federal or state law limited the maximum time those payments could be made.

Unlike other employees, long-term TANF recipients are eligible for two years. The maximum tax credit is $9,000, over the two-year period.

During the first year, the credit is 40% of their first-year wages, if they work for at least 400 hours. During the second year, the credit is 50% of their second-year wages, if they work for at least 400 hours.

Short-Term

A short-term TANF recipient is qualified if they received TANF benefits for any nine-month period during the last 18 months.

The maximum tax credit is $2,400.

Vocational Rehabilitation Recipients

If an individual with a mental or physical disability is referred to you while they’re completing rehabilitation services or within two years of completing rehabilitation services, they’re eligible.

The maximum tax credit is $2,400.