WOTC

The Work Opportunity Tax Credit (WOTC) is a federal tax incentive designed to encourage employers to hire individuals from specific groups that have historically faced significant barriers to employment. By providing a tax credit for hiring eligible employees, the WOTC program helps both businesses and job seekers, fostering a more inclusive workforce and supporting economic growth. The credit is available for wages paid to certain individuals who begin work on or before December 31, 2025.

How the Work Opportunity Tax Credit Works

The WOTC allows employers to claim a tax credit equal to a percentage of qualified wages paid to eligible employees during their first year of employment. Generally, the credit is 40% of up to $6,000 in qualified first-year wages for employees who work at least 400 hours, resulting in a maximum credit of $2,400 per eligible hire. For certain categories, such as qualified veterans, the wage cap can be as high as $24,000, increasing the potential credit to $9,600.

To qualify, the employee must be certified as a member of a targeted group by a state workforce agency. The employer must submit IRS Form 8850, Pre-Screening Notice and Certification Request, to the state agency within 28 days of the employee’s start date.

Eligible Employee Categories Under WOTC

The WOTC targets several groups that face barriers to employment. According to the Internal Revenue Code, eligible categories include:

• Qualified IV-A recipients (TANF recipients)
• Qualified veterans (with subcategories based on unemployment duration, disability, or SNAP benefits)
• Qualified ex-felons
• Designated community residents (living in empowerment zones or rural renewal counties)
• Vocational rehabilitation referrals
• Qualified summer youth employees
• Qualified Supplemental Nutrition Assistance Program (SNAP) recipients
• Qualified Supplemental Security Income (SSI) recipients
• Long-term family assistance recipients
• Qualified long-term unemployment recipients

Each group has specific eligibility criteria, such as age, duration of assistance, or residency requirements.

How Employers Apply for the WOTC

Employers must follow a specific process to claim the workplace opportunity tax credit:

1. Pre-Screening: Complete IRS Form 8850 with the job applicant on or before the day a job offer is made.
2. Submission: Submit Form 8850 to the state workforce agency within 28 days after the new hire begins work.
3. Certification: Await certification from the state agency confirming the employee’s eligibility.
4. Claiming the Credit: Once certified, claim the WOTC on IRS Form 5884 (or Form 5884-C for qualified tax-exempt organizations hiring veterans) when filing the business’s federal tax return.

Employers must retain supporting documentation and certification records for at least three years.

Benefits of Using WOTC Providers

WOTC providers can streamline the application and compliance process for employers. These specialists help identify eligible hires, manage documentation, ensure timely submission of forms, and maximize the credit claimed. By leveraging their expertise, businesses can reduce administrative burdens, avoid missed deadlines, and increase the likelihood of receiving the full benefit of the WOTC tax credit. This is especially valuable for companies with high turnover or large-scale hiring needs.

FAQ

Who qualifies an employer to receive the WOTC?
An employer qualifies for the WOTC by hiring individuals certified as members of targeted groups, such as veterans, ex-felons, or SNAP recipients. The employee must meet specific eligibility criteria, and the employer must obtain certification from the state workforce agency before claiming the credit.

How do businesses apply for WOTC?
Businesses apply by completing IRS Form 8850 with the job applicant and submitting it to the state workforce agency within 28 days of the employee’s start date. After receiving certification, the employer claims the credit on their federal tax return using Form 5884.

What types of employees make an employer eligible for WOTC?
Employees who are members of targeted groups such as long-term unemployment recipients, veterans, ex-felons, TANF recipients, and others make an employer eligible for the WOTC, provided all program requirements are met.

Can a company claim WOTC for remote or part-time employees?
Yes, employers can claim the WOTC for remote or part-time employees as long as the employee meets the targeted group criteria, works at least 120 hours, and all certification and documentation requirements are satisfied.

What documentation is required to claim the WOTC?
Employers must submit Form 8850 to the state workforce agency, obtain certification, and keep records of the certification, hours worked, and wages paid. Additional forms, such as ETA Form 9061 or 9062, may also be required depending on the employee’s circumstances.

Final Thoughts
The WOTC is a valuable tool for businesses seeking to reduce tax liability while making a positive social impact. By understanding the program’s requirements and leveraging Workplace Opportunity Tax Credit Providers, employers can maximize their benefits and contribute to a more inclusive workforce.

Still Have Questions?

Bennett Thrasher’s has tax advisors that specialize in R&D tax credits to ensure companies are maximizing the tax credits available to them. To get more information about the R&D tax credit or to see if your company qualifies, contact Nina Desai for a free consultation, or call 770.396.2200.