What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. This incentive is designed to encourage
job creation and economic growth, particularly among disadvantaged populations.
Veterans
Long-term unemployed individuals
Recipients of Temporary Assistance for Needy Families (TANF)
Food stamp (SNAP) recipients
Ex-felons
Supplemental Security Income (SSI) recipients
Designated community residents
Vocational rehabilitation referrals
Entrepreneurs should be aware of these categories to ensure they are hiring eligible candidates and maximizing their potential tax credits.
How Much is the Tax Credit Worth?
The amount of the tax credit varies depending on the employee’s target group and hours worked in the first year. Generally, the credit can range from $1,200 to $9,600 per employee. Entrepreneurs should consult with a tax professional to determine the precise amount they can claim based on their specific hiring practices and employee qualifications.
Pre-screening: Entrepreneurs must use IRS Form 8850 to pre-screen and determine if an employee is a member of a targeted group.
Submit Forms: Submit Form 8850 along with ETA Form 9061 or ETA Form 9062 to the state workforce agency within 28 days of the employee’s start date.
Certification: The state workforce agency will review the submission and certify if the employee qualifies for the WOTC.
Understanding this process is crucial for entrepreneurs to ensure compliance and to successfully claim the tax credit.
Common Challenges and How to Overcome Them
Entrepreneurs may face challenges such as the administrative burden of applying for WOTC or difficulty in identifying eligible employees. To overcome these challenges, consider the following tips:
Use
HR software that integrates WOTC processing to streamline the application process.
Partner with local workforce agencies or employment services that can help identify eligible candidates.
Provide ongoing training for HR staff to ensure they are familiar with WOTC requirements and procedures.
Conclusion
The Work Opportunity Tax Credit (WOTC) offers significant advantages for entrepreneurs looking to reduce their tax liabilities while contributing positively to society. By understanding the eligibility requirements, application process, and potential benefits, entrepreneurs can make informed decisions that support both their business objectives and broader community goals.