What is the Work Opportunity Tax Credit?

What is the Work Opportunity Tax Credit? April 23, 20181 Comment
work opportunity tax credit

If you work in a high-turnover industry, it’s likely that you’ve heard of the Work Opportunity Tax Credit. You may even know that it’s a way to reduce federal income tax liability that the government offers to companies that employ qualified individuals from target groups with “significant barriers to employment.” Unfortunately for many, that’s where an understanding of the Work Opportunity Tax Credit stops.

The Work Opportunity Tax Credit, often called WOTC for short, is a great way for companies with qualified candidates to reduce their federal income tax and cost of doing business. In fact, American employers claim about one billion dollars in WOTC write-offs a year.

What is the Purpose of the Work Opportunity Tax Credit?

WOTC was created with the intention of offering employers a financial incentive to hire employees who are members of certain target groups. These target groups consist of people who are currently receiving certain forms of government assistance while looking for employment such as members of an Empowerment zone, ex convicts reentering the workforce, and unemployed veterans. This helps qualified employees who might normally be at a higher risk of continued unemployment move towards financial self-sufficiency more easily.

How Much Can Companies Get from WOTC?

The monetary benefit for hiring a WOTC candidate can be quite substantial. Depending on the candidate in question, the employing company can get a maximum tax credit of anywhere between $1,200 and $9,600 per candidate!

Both the candidate’s target group and the number of hours worked by the candidate will affect how large of a tax credit your company can get per qualified hire. Qualifying candidates who have worked at least 120 hours during their first year of employment can be claimed for a tax credit of 25% of their first year of qualified wages. What counts as qualified wages depends on their target group. With candidates who work at least 400 hours, that tax credit goes up to 40% of qualified first-year wages.

What Kinds of Businesses Can Benefit from WOTC?

Any private sector business that hires qualified candidates can benefit from the Work Opportunity Tax Credit. There are even a few tax-exempt organizations that can benefit. Certain industries with high turnovers such as quick-service restaurants, retail, manufacturing and hospice care can especially benefit simply because of their increased volume of demand for workers.

However, the increased number of applicants and new employees in these industries also causes a problem that keep many companies from taking full advantage of the Work Opportunity Tax Credit. Simply put: they don’t have a system in place to capture information for all qualifying hires.

How Can My Business Take Advantage of the Work Opportunity Tax Credit?

Filing for the Work Opportunity Tax Credit requires submitting the required IRS and ETA forms to your state workforce agency within 28 days of the employee’s start date. The forms are quite short and easy to fill out. However, between the short window of time to file the forms and the difficulties involved in getting potential new hires to voluntarily provide the personal information needed to identify them as WOTC candidates, many companies miss out on the chance to claim the tax benefits for their qualified candidates.

The best way to take advantage of the Work Opportunity Tax Credit is to integrate a process for capturing WOTC candidate information into your already-existing application and on-boarding process. Having a plan to collect the data needed to identify WOTC during the hiring process will make it easier for your business to not only identify which potential new hires are WOTC qualified, it will also make filing for their certification with the SWA quicker and more efficient.

If you have questions about how your company can integrate such a process into your hiring practices, contact us here at Efficient Business Solutions. We would be happy to explain our proven strategy for getting the maximum amount of WOTC benefits available to you.

For more information on WOTC and candidate qualification, use the United States Department of Labor Employment and Training Administration’s website.

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