WOTC Explained

Taking Advantage of Work Opportunity Tax Credits

For high-turnover industries focused on hiring hourly employees, it’s common to hire employees that would qualify for Work Opportunity Tax Credits (WOTC). For companies with significant annual hiring volume, using these credits can help deduct tens of thousands of dollars from taxable income.

Let’s dive in to how to maximize WOTC for your business.

What is the Work Opportunity Tax Credit?

WOTC is a Federal Tax Credit available to most employers who hire and retain veterans and individuals from other groups with barriers to employment. Employers are eligible to reduce their federal income tax liability with a credit potential up to $9,600 for some employees.

Who is Eligible for WOTC?

WOTC is available for employers that hire from targeted groups (as determined by section 51 of the Internal Revenue Code) who traditionally experience barriers to employment. This includes:

  • Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans (including disabled veterans)
  • Formerly incarcerated individuals
  • Designed community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Long-term family assistance recipients
  • Long-term unemployment recipients

As per the IRS, WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.

WOTC Credit Amounts

You can estimate the amount of savings (in reduced taxable income) your company could experience through WOTC filing by measuring your total number of employees and your annual turnover percentage.

We can do that math for you. See how much your company could be saving with our handy WOTC ROI calculator.

How Do I Obtain My WOTC Credits?

To benefit from this tax incentive, applications for each WOTC-eligible employee must be submitted to the state in which they work for review and approval. There are two IRS forms you must complete for each hire:

IRS Form 8850 must be submitted within 28 calendar days of the employee’s start date. In addition to completing these forms, you may need to provide supporting documents to prove the employee’s eligibility. Once the employee is approved by the state, you can start gaining credits based on their hours and wages. Keep in mind WOTC is a credit applied to your federal taxable income, and you must file for the tax credit with the IRS.

Through TEAM’s WOTC filing service and data solutions, we’re we can simplify the WOTC process. This helps you avoid drowning in paperwork and can help you deduct thousands of dollars of taxable income.

Start seeing savings with WOTC.

For more information, visit the United States Department of Labor WOTC page.

This article was originally published on May 16, 2018.