Work Opportunity Tax Credit (WOTC)
Definition
A federal tax credit available to employers who hire individuals from certain target groups that have historically faced significant barriers to employment.
What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal incentive program administered jointly by the IRS and the U.S. Department of Labor. It provides tax credits to employers that hire workers from designated target groups, including veterans, recipients of certain public assistance programs, people with disabilities, and other qualifying individuals. The value of the credit typically ranges from $1,200 to $9,600 per qualified new hire, depending on the target group and the number of hours worked in the first year of employment.
Why is WOTC Important for Employers?
- Provides federal tax savings that can directly reduce an employer’s tax liability
- Encourages inclusive hiring practices and broadens the available talent pool
- Requires timely action; IRS Form 8850 must be submitted to the State Workforce Agency on or before the employee’s first day of work
FAQs
Which target groups qualify an employer for WOTC?
Eligible groups include qualified veterans, TANF (Temporary Assistance for Needy Families) recipients, Supplemental Nutrition Assistance Program (SNAP) recipients, ex-felons, Supplemental Security Income recipients, vocational rehabilitation referrals, and certain long-term unemployment recipients, among others designated by the IRS.
How does an employer claim the WOTC?
Employers must submit Form 8850 (the pre-screening notice) to their State Workforce Agency within 28 days of the employee’s start date. Once a certification is received, the employer claims the credit on their federal tax return using IRS Form 5884.
Is there a limit to how many employees an employer can claim WOTC for?
No, there is no limit on the number of qualifying hires for which an employer may claim the WOTC in a given tax year.
How ExtensisHR Can Help
We assist employers by:
- Screening new hires for WOTC eligibility during the onboarding process
- Managing pre-screening and certification paperwork with the State Workforce Agency on the employer’s behalf
- Tracking credit opportunities across the workforce to maximize available tax savings
- Ensuring required forms are submitted on time