Do you desire to know more about work opportunity tax credit? Then keep reading this article!
The work opportunity tax credit is the federal tax credit available to employers who hire and retain qualified veterans.
As other individuals from target groups which is historically have faced barriers in securing employment.
Moreover, to create economic opportunities the program will help lessen the burden on the government assistance programs. Do you want to maximize your tax credits? Then you are on the right page.
READ MORE: Work Opportunity Tax Credit (WOTC)
What Is Work Opportunity Tax Credit?
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The work opportunity tax credit (WOTC) is the federal tax credit that’s available to employers to hire individuals from certain targeted groups.
It includes people who have faced barriers to employment. The tax credit is meant to encourage diversity in the workplace while also making jobs accessible to specific segments of the workforce.
What Types of Workers Qualify for The WOTC?
The following is the list of the target groups that are eligible for the WOTC:
- Qualified UVA recipients.
- Qualified veterans.
- Qualified ex-felons.
- Designated community residents (DCRs).
- Summer youth employees.
- Vocational rehabilitation referrals.
- Supplemental Security Income (SSI) recipients.
- Supplemental Nutrition Assistance Program (SNAP) recipients.
- Qualified long-term unemployment recipients.
- Long-term family assistance recipients.
Moreover, each target group has some requirements that must be met for the employee to be eligible for the WOTC. For example, a member of the DCR group must be between the ages of 18 and 40, live in the Empowerment zone, an Enterprise community, or the Renewal community, and continue to live in that location after being employed.
What Types of Workers Are Ineligible For WOTC?
Only those that fall into the target group categories will mind the business eligible for the WOTC.
Additionally, even when they do fall into one of the target groups, the following individuals are ineligible:
- Business owner’s dependents or relatives.
- Majority of owners in the company.
- People who were formerly employed by your business, except for summer youth.
An employer cannot reclaim the WOTC for an employee who has been rehired.
READ MORE: Work Opportunity Tax Credit
What Is the Maximum Work Opportunity Tax Credit Available?
How much of the WOTC you’ll be eligible to receive when you hire the individual from the target group may vary. But the typical amount of tax credit you can receive is between 25% to 40% of the employee’s wages in the first year of their employment.
In most instances, employers are eligible for 25% of the employee’s wages if they work at least 120 hours and 40% if the employee works 400 hours or more in their first year.
For instance, when the employee works for 200 hours in the first year at their business and earns a total of $20,000, your organization can be eligible for $5,000 in tax credit for the employee. Furthermore, the maximum WOTC is $9,600 per qualifying employee.
Tips For Calculating the Work Opportunity Tax Credit for Your Business
The following are tips to know in other to make it easier for you to calculate the WOTC of your company:
- You need to have all employees fill out the WOTC forms as part of the onboarding process.
- You need to submit your WOTC paperwork to the IRS and your state’s workforce agency for each employee within 28 days of the employee’s start date.
- Keep records of eligible employees’ wages and hours worked. Employees must work at least 120 hours to be eligible for the tax credit.
- Then file Form 5884 and Form 3800 to claim the tax credit as the general business credit with your regular income tax return.
How To Find Employees That Qualify for the WOTC
The WOTC is a fantastic program that benefits both employers and employees. Employers receive money and employees who often face hiring challenges get an opportunity to work.
Moreover, the program doesn’t end there. There are systems to help employers to connect with workers that qualify for WOTC.
However, the American Job Centers and partnering agencies help employers to connect with skilled candidates that may come from trade groups that qualified for WOTC.
Furthermore, employers can connect with American Job Centers and get help with hosting job fairs, recruiting candidates, and conducting skills assessments among others.
Additionally, some employees gave a pre-certification confirming their eligibility for WOTC, but this is somewhat rare and not necessary for hiring.
Also, employers can make use of a state workforce agency (SWA) or participating agency to confirm a candidate’s qualification for the Work Opportunity Tax Credit.
Benefits of Outsourcing Tax Credits and Business Incentives Administration
Both newly eligible businesses that haven’t yet taken advantage of tax credits and those that already have a large tax credit portfolio may benefit from outsourcing tax credits.
Moreover, it can help them:
- Identify and evaluate new opportunities for which they may be eligible.
- To maintain accurate records so they can make informed decisions backed by data.
- Stay compliant with changing tax credit laws and avoid penalties.
- Also, report tax credit activities and meet deadlines.
READ MORE: Who qualifies for the Work Opportunity tax credit
Conclusion
The work opportunity tax credit (WOTC) is a federal tax credit which is available to employers to hire individuals from specific targeted groups. It includes people who have faced important barriers to employment.
