Are You Leveraging Your WOTC Tax Credit?

Posted by Kayla Lopez

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that is available to employers for hiring individuals from certain groups who have faced barriers to employment. WOTC partners with other workforce development departments to encourage workforce diversity and to assist in providing additional opportunities to those who are considered to have a significant barrier to employment.  

Employers can earn and apply for a tax credit for each qualifying employee. Credits can range from $1,200 for qualifying young people hired to do summer work, to as much as $9,600 for certain military veteran employees that fit the barrier groups.

WOTC is available to all employers, including non-profits, no matter the size or industry. Additionally, there are no restrictions on what states qualify for this credit, although there are some exceptions for credits in Empowerment Zones. The tax credit also applies to all positions, the job title or duty have no relevance on the tax credit qualifications. As an employer, there is no limitation on the number of WOTC tax credits you can apply for, as long as it doesn't exceed the amount of the business income tax liability or social security tax owed.

There are some exceptions to these standards:

  • Self-employment or independent contractor work does not qualify

  • If the employee is already working for a company for over 12 months (In some cases you can make an adjustment and file retroactively)

  • This credit does not apply to close relatives employed by a business

  • If you own a majority of the business and fall into a barrier


The Amount of the tax credit that a business can receive will depend on several things like:

  • How long the new worker was unemployed.

  • The employee’s salary.

  • The number of hours worked in the first year.

  • There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit. But there are some rules as far as the cap in credit as described above.

There are certain steps that employers must follow to apply for and claim the tax credit. These credits are not issued automatically and the employer must do the leg work to qualify. No worries though, it is a very simple process and easy to follow.

  1. Find workers from credit-eligible groups

  2. Fill out the required forms

  3. Submit forms to state workforce office

  4. Claim the credit


Employers can hire eligible employees from the following target groups for WOTC and receive tax credits ranging from $1200.00 to $9600.00 based on the hires group inclusions.

Qualified IV-A Recipient
An individual who is a member of a family receiving assistance through a state plan approved under part A of title IV of the Social Security Act relating to Temporary Assistance for Needy Families (TANF). The assistance must be received for any 9-month period during the 18-month period ending on the hiring date.


Qualified Veteran

A “qualified veteran” is a veteran who is any of the following:

  • A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least 3 months during the first year of employment.

  • Unemployed for a period totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.

  • Unemployed for a period totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.

  • A disabled veteran entitled to compensation for a service-connected disability hired not more than one year after being discharged or released from active duty in the U.S. Armed Forces.

  • A disabled veteran entitled to compensation for a service-connected disability who is unemployed for a period totaling at least six months (whether or not consecutive) in the one-year period ending on the hiring date.

  • See IRS Notice 2012-13 (PDF) for more detailed information.

 

Ex-Felon
A “qualified ex-felon” is a person hired within a year of:

  • Being convicted of a felony or

  • Being released from prison from the felony Designated Community Resident (DCR)

A DCR is an individual who, on the date of hiring is at least 18 years old and under 40 and Resides within one of the following:

  • An Empowerment zone

  • An Enterprise community

  • A Renewal community
    AND continues to reside at the locations after employment.

 

Vocational Rehabilitation Referral

A “vocational rehabilitation referral” is a person who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services pursuant to”:

  • A state plan approved under the Rehabilitation Act of 1973 OR

  • An Employment Network Plan under the Ticket to Work program, OR

  • A program carried out under the Department of Veteran Affairs.

  • Summer Youth Employee

    • A “qualified summer youth employee” is one who:
      Is at least 16 years old, but under 18 on the date of hire or on May 1, whichever is later, AND Is only employed between May 1 and September 15 (was not employed prior to May 1st) AND Resides in an Empowerment Zone (EZ), enterprise community or renewal community.

Supplemental Nutrition Assistance Program (SNAP) Recipient
A “qualified SNAP benefits recipient” is an individual who on the date of hire is:

  • At least 18 years old and under 40, AND

  • A member of a family that received SNAP benefits for the previous 6 months OR
    at least 3 of the previous 5 months.

Supplemental Security Income (SSI) Recipient
An individual is a “qualified SSI recipient” if a month for which this person received SSI benefits is within 60 days of the date this person is hired.

Long-Term Family Assistance Recipient
A “long term family recipient” is an individual who at the time of hiring is a member of a family that meet one of the following conditions:

  • Received assistance under an IV-A program for a minimum of the prior 18 consecutive months; OR

  • Received assistance for 18 months beginning after 8/5/1997 and it has not been more than 2 years since the end of the earliest of such 18-month period; OR

  • Ceased to be eligible for such assistance because a Federal or State law limited the maximum time those payments could be made, and it has been not more than 2 years since the cessation.


Qualified Long-Term Unemployment Recipient
A qualified long-term unemployment recipient is one who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during some or all or the unemployment period.

 

How to File for WOTC Tax Credits        

Employers use Form 8850 to pre-screen and to make a written request to the state workforce agency (SWA) of the state in which their business is located (where the employee works) to certify an individual as a member of a targeted group for purposes of qualifying for the work opportunity credit.

Submitting Form 8850 to the SWA is but one step in the process of qualifying for the work opportunity credit. The WOTC coordinator for the SWA must certify the job applicant is a member of a targeted group. After starting work, the employee must meet the minimum number-of-hours-worked requirement for the work opportunity credit. Generally, an employer elects to take the credit by filing form 5884, Work Opportunity Credit.

However, a tax-exempt organization that hires a qualified veteran should report the work opportunity credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans

https://www.irs.gov/pub/irs-pdf/f8850.pdf

Contact your Local state workforce development center for Form 9061.

Do not file Form 8850 with the Internal Revenue Service. Instead, you must generally submit it to the SWA of the state in which your business is located (where the employee works) no later than the 28th calendar day after the date the member of a targeted group begins working for you.

Although there are some exceptions please contact your state workforce agency for more specific information: Use the link below to find resources to your local state workforce center Click on your state for a direct link to your states workforce agency.

https://usnlx.com/state-workforce-agencies.asp

Looking for additional ways to Leverage resources when building a Veteran Hiring or Military Spouse program? Contact us now for a free strategy session and more information.

Topics: recruit military veterans, recruitment strategy, talent recruiting tips