What is the Work Opportunity Tax Credit program?
The Work Opportunity Tax Credit (WOTC) program is available to business owners. It provides a tax credit for hiring individuals from certain target groups who face barriers to employment.
The target groups included in this program are:
- Temporary Assistance for Needy Families (TANF), also called Qualified IV-A recipient;
- Qualified veteran.
- Qualified ex-felon.
- Designated community resident.
- Vocational rehabilitation referral.
- Recipient of SNAP benefits (food stamps).
- Supplemental Security Income (SSI) recipient.
- Long-term family assistance recipient.
- Qualified Long-term unemployment recipient.
Why does it matter to me as an employer or business owner?
Companies who hire from one of these target groups, are eligible for a tax credit. Depending on certain criteria being met, the tax credit can range from $2,400 to $9,600 – per employee hired. There is no limit on how many eligible employees you can hire under this program.
The tax credit amount is based on:
- A percentage of qualified wages paid during the first one or two years of employment (dependent upon category)
- All new employees must work a minimum of 120 hours.
Can my existing or re-hired employees qualify?
The WOTC program is only available to new hires. The applicants must view and respond to the questions on or before their date of job offer. Existing or re-hired employees are not eligible for the program. Anyone that you've paid on your payroll with your Tax ID number is not eligible for WOTC.
Is this a payroll tax?
WOTC is a federal income tax credit, and is used to offset federal income tax liability of the employer’s business. It is not to be confused with a business’s payroll taxes obligation or reporting.
Will this have an effect on my employee’s taxes or benefits?
This does not impact your employees directly, including your employees’ taxes or their benefits. It is only related to the businesses that hire qualified employees.
Sounds interesting, who administers WOTC and are they EEOC compliant?
WOTC continues to be authorized under the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). The U.S. Department of Labor (DOL) and U.S. Department of Treasury, through the Internal Revenue Service (IRS), jointly administer the provisions and requirements for the WOTC program. However, the actual review and certification process happens at the state level through the individual State Workforce Agencies (SWAs).
As such, the time to process each application can vary from state to state. For more information, please go to https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit.
The program is fully EEOC compliant. The EEOC worked in collaboration with the Department of Labor and the IRS in developing a program and a screening process that all parties were comfortable with. This program has been in effect since 1996 and virtually all major employers participate in the program, collectively earning over 1 billion dollars in tax credits per year.
Why have I never heard of this and how can you help?
WOTC is a very cumbersome process if companies try to administer the program themselves. Because it is so labor intensive, very few companies actually participate. We have taken this cumbersome process and have completely automated it. From start to finish, we have made it very easy and many of our clients have enjoyed the benefits.