What WOTC Is and Why It Matters to You
Are you taking advantage of the Work Opportunity Tax Credit?
When labor is your top expense, like in the contract security and janitorial industries, anything you can do to control those costs is going to have a positive impact on your bottom line. Even though your costs may increase, you can’t just increase prices for your customers when they can easily find another service provider willing to charge less. One way to help offset labor costs is through the Work Opportunity Tax Credit (WOTC) program.
WOTC is a U.S. federal tax credit for employers when they hire individuals from certain groups who have faced significant barriers to employment. While it may sound simple, we’re here to help you break down the program, find out which hires are eligible, what you need to do to get started and what it could mean for your business.
A Quick History Lesson
WOTC was introduced in 1996 as a temporarily enacted tax provision and has been extended consecutively since. It has most recently been renewed through December 31, 2025. Over the span of the program, WOTC has helped employers subsidize hiring and labor costs and helped millions of individuals who might otherwise be dependent upon government aid programs secure and maintain stable employment.
Before you get started with WOTC, you need to have a basic understanding of who’s eligible to know how much of a credit you could potentially receive. Under WOTC, qualified groups include:
- Qualified veterans
- Qualified long-term unemployment recipients
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Qualified IV-A recipients
- Designated Community Residents (DCR)
- Vocational Rehabilitation Referrals
- Summer Youth Employees
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
WOTC can be especially beneficial for security contractors due to the number of veterans who pursue a career in the security industry after they’re done serving in the military. There’s a large pool of potential employees who would qualify for WOTC in the janitorial industry, as well. According to the Department of Labor, over two million WOTC certifications were issued in 2019.
WOTC is also particularly helpful for companies with high turnover and new hire rates. Because you can file a claim for any eligible new hire who works at least 120 hours, employers that are continually bringing on new employees can use WOTC to help offset onboarding and recruiting costs. According to the Tax Foundation, depending on the target group eligibility of the person hired, wages and the number of hours worked, WOTC allows businesses to claim tax credits up to a maximum of $9,600 of qualified wages per eligible employee, which can be deducted from taxable income. On average, employers are eligible to reduce their federal income tax liability by to up $2,400 per eligible employee. Some eligible groups have different levels of qualified wages higher or lower than $9,600.
Sounds Great. Now What?
Navigating the WOTC process, especially if you’ve never filed before, can seem daunting. It’s important to verify all steps of the process are followed correctly and to partner with companies that can simplify the process if you don’t have the ability to do it in-house. And, if you use an industry-specific ERP as your one source of record, you already have all the information you need in one place.
In order to claim WOTC for eligible employees, you must file certification request applications with the state workforce agencies within 28 calendar days of the new hire’s start date. This process requires you to file both an IRS Form 8850 and an ETA Form 9061 or ETA Form 9062 together. You can find specific submission instructions on your state workforce agency’s website.
TEAM Software is dedicated to ensuring our software solutions meet the ever-changing needs of our customers. We’re also continually working to bring you relevant content to help you manage your business better by taking advantage of programs like WOTC. While we’re committed to keeping you informed, it’s important to do your own research, and consult your own legal and tax advisors when necessary, too. For more information on the WOTC tax credit, visit the United States Department of Labor WOTC page.