Don't miss out on the Work Opportunity Tax Credit (WOTC)

[Julio Gonzalez]

Did you know that there’s a tax credit available to employers that hire employees from specific target groups that may otherwise experience significant barriers to employment? This is known as the Work Opportunity Tax Credit (WOTC). This program was created to help increase employment opportunities and reduce poverty for specific underprivileged groups. It’s a win-win as employers receive a tax credit and the employees receive a job that can lead to a path of financial stability. This tax credit is dollar for dollar and is based on a percentage of wages paid in the first year to the eligible employee. It reduces the employers’ tax bill rather than deducting from the profits.

Which employee groups are eligible?

There are 9 groups eligible for WOTC and they must work a minimum number of hours or days and the eligible employee must be paid at least $6,000 in qualified wages ($3,000 for summer youth employees).

• Summer Youth Employees (90 days)
  • Must be between 16 and 18 years old, employed between May 1 and September 15 and live in a Renewal Community, Enterprise Community or Empowerment Zone.
• Long-term Unemployment Recipients (400 hours)
  • Must have been unemployed for 27 consecutive weeks.
• Supplemental Security Income (120 hours)
  • Individuals who receive SSI benefits within 60 days of their hire date.
• Supplemental Nutrition Assistance Program (SNAP) Recipients (120 hours)
  • Must be between 18 and 40 years old and be a family member that has received SNAP benefits either for three of the last five months or the previous six months.
• Vocational Rehabilitation Referrals (120 hours)
  • Must have a mental or physical disability and must have been referred upon completion of a state plan under the Rehabilitation Act of 1973.
• Designated Community Residents (DCRs) (90 hours)
  • Must be between 18 and 40 years old and live in and continue to reside in a Renewal Community, Enterprise Community or an Empowerment Zone.
• Ex-Felons (400 hours)
  • Must be hired within one year of being released from prison for a felony or of being convicted of a felony.
• Veterans (400 hours)
• Temporary Assistance for Needy Families (TANF) Recipients (120 hours)
  • Long term and short term recipients along with their family members.

What is the credit amount?

The tax credit for most target groups is 25% of the first year of wages up to $6,000. The tax credit for veterans can be up to 40% of the first year of wages up to $12,000. This is a non-refundable tax credit. Thus, if the tax credit exceeds the amount of taxes owed, the difference is not refundable to the taxpayer.

What documents are needed to apply for WOTC?

The following documents are required to apply for WOTC:

• Certification form
• Proof of eligibility
• Proof of hire
• Proof of wages paid

This process can be complex and difficult, therefore, it’s recommended to work with your CPA or a professional when applying for this.