Why employers love the Work Opportunity Tax Credit

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Why employers love the Work Opportunity Tax Credit


There's not much to love about taxes. 

Tax credits are a different story, though. Especially tax credits that save your business money when you hire certain employees. 

Basically, that's the idea behind the Work Opportunity Tax Credit (WOTC) - a federal tax credit for employers who hire and retain individuals from certain target groups.

Read on to find out why employers love the WOTC:

 

What is the Work Opportunity Tax Credit?

 

The WOTC is a federal tax credit that incentivizes employers to hire and retain certain workers. Generally speaking, the groups these individuals come from have traditionally seen higher-than-average levels of unemployment.

There’s no limit on the number of individuals an employer can hire to qualify.

Historically, the WOTC has been renewed retroactively by Congress. Last year, it was renewed under the Protecting Americans from Tax Hikes (PATH) Act - retroactive from 2015 and through 2019.

 

What are the Work Opportunity Tax Credit eligible groups?

 

As we mentioned, the WOTC was designed to encourage employers to hire individuals from groups that have traditionally suffered from higher unemployment.

The amount of the credit is largely determined by which category the indidual hire  belongs to (in addition to wages paid and hours worked). For example, the maximum credit you could recieve for a veteran unemployed for at least 6 months is $9,600, while the maximum credit for a SNAP (food stamp) recipient is $2,400.

Here are the WOTC-eligible groups:

  • Veterans 
  • TANF Recipients 
  • SNAP (Food Stamp) Recipients 
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational Rehabilitation Referral 
  • Ex-felons
  • Supplemental Security Income (SSI) Recipients
  • Summer Youth Employee (living in Empowerment Zones)

You can click here for more information about the WOTC target groups.

 

How employers can claim the Work Opportunity Tax Credit

 

Completeing the WOTC process involves a few steps:

  1. In order to apply for WOTCs, the employer needs to complete IRS Form 8850 during the hiring process (page 1 when the job offer is made and page 2 once the individual is hired). This IRS form, called the Pre-Screening Notice and Certification Request for Work Opportunity Credit, is used to verify that the employee does in fact belong to one of the WOTC-eligible groups.

  2. The employer must complete ETA Form 9061, or ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a state workforce agency, Vocational Rehabilitation agency, or another participating agency.

  3. Finally, the completed and signed IRS and ETA forms need to be submitted to your state workforce agency. Forms must be submitted within 28 calendar days of the employee's start date.

An easier way to complete the WOTC process is by using an all-in-one HR platform that pre-screens new hires for WOTC-eligibility. CheckWriters' platform completes this process for you and handles all documentation, including submittal to the proper agencies.

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