The Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain groups that have consistently faced significant barriers to employment.  Employers may receive tax credits ranging from $1,200 to $9,600 per qualified hire, and the credit is based on a percentage of the employee’s first-year wages.

The WOTC laws have recently changed, and now the WOTC is more accessible to employers.  The pool of eligible new hires has expanded, as the law added an additional “targeted group” of qualifying employees.  Plus, the WOTC credit has been retroactively extended so it applies to tax years 2015 through 2019.

Targeted Groups for WOTC Purposes

Employers may claim the WOTC for a qualified employee from the following targeted groups who is hired between January 1, 2015 and December 31, 2019:

  • Temporary Assistance for Needy Families (TANF) recipients
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Unemployed veterans (including disabled veterans)
  • Designated Community residents (Empowerment Zones, Renewal Communities, etc.)
  • Ex-felons
  • Summer youth employees living in Empowerment Zones
  • Vocational rehabilitation referrals
  • Social Security Income (SSI) benefits recipients
  • Long-term family assistance recipients

New Targeted Group for 2016 Hires:  “Qualified Long-term Unemployment Recipients”

The new WOTC targeted group, “Qualified Long-term Unemployment Recipients,” applies to new hires that began work on or after January 1, 2016.  A qualified long-term unemployment recipient is someone who has had:

  • a period of unemployment lasting at least 27 consecutive weeks, as certified by the local unemployment agency
  • received State or Federal unemployment compensation during any part of that unemployment period.

Procedure for Claiming WOTC

The Internal Revenue Code requires that in order for an employer to claim a WOTC, the employer must verify the employee’s eligibility.  The employer must obtain certification from the designated local agency that the individual is a member of a targeted group on or before the first day of employment.  The employer also has the option of completing the prescreening IRS Form 8850 on or before extending an offer of employment, and submitting the Form to the designated local agency no later than 28 days after the employee begins working.

Additionally, the employer must also submit either ETA Form 9062 or ETA Form 9061 to the appropriate state WOTC coordinator.

Don’t leave valuable WOTC credits on the table. If you are taking the necessary steps to qualify for the credits internally, ensure that your 2015 hires and all future hires are screened properly. Or if you’d rather hire a professional to verify employee eligibility, we can connect you with some trusted providers who offer this service. And don’t forget to let us know if you are eligible for WOTC credits by the end of this year!  Contact us with any questions.