The Work Opportunity Tax Credit (WOTC) is designed to be an incentive for employers to hire people who frequently face difficulty finding employment. As the name implies, this incentive is in the form of a tax credit. As such, it is administered by both the Department of Labor (DOL) and the Internal Revenue Service (IRS). It is currently authorized until the end of 2019.
This program began in the 1990s and has been renewed by Congress since then. Its current 5-year authorization began in 2014; it could be renewed again by Congress in the future. The categories of qualified individuals are occasionally updated.
According to the DOL fact sheet on the topic, the disadvantaged groups currently targeted under the WOTC include the following:
- Qualified IV-A recipient (IV-A is part of the Social Security Act relating to assistance for needy families)
- Qualified veteran
- Qualified ex-felon
- Designated community resident (residing in an empowerment zone, an enterprise community, or a renewal community)
- Vocational rehabilitation referral
- Recipient of SNAP benefits (food stamps)
- Supplemental Security Income (SSI) recipient
- Long-term family assistance recipient
- Qualified long-term unemployment recipient
For more details about how an individual qualifies under each of these categories, see the IRS page on the WOTC, here.
For an employer to get the tax credit, the organization must first prescreen and certify that the individual qualifies. There’s an IRS form for this process, Form 8850. It must be completed promptly at hiring. Then there are additional steps to claim the credit, namely DOL Employment and Training Administration (ETA) Form 9061 or Form 9062. The forms are due within the first 28 days of employment.
After certification is complete, the business will be eligible for a one-time tax credit, the amount of which varies by employee and is subject to maximum amounts, which also vary by employee. The maximums range between $1,200 and $9,600. The credit is meant to offset the employer’s federal income tax liability for that individual in the first year of employment. (For income tax exempt businesses, the credit will offset the amount of Social Security tax owed.)
Why Would an Employer Hire Under the WOTC?
The primary reason employers are interested in this program, naturally, is the tax benefit conferred upon meeting the program requirements. The tax benefits for the employer can be substantial and can offset the cost of hiring. Beyond that, however, there are other practical reasons an employer may choose to actively seek out applicants who qualify under the WOTC. Here are a few:
- Hiring these individuals may improve the diversity of the workforce.
- There may be a public relations opportunity by promoting the fact that the organization actively seeks to help disadvantaged groups.
- These employees may be more likely to remain with the organization for longer periods of employment, thus reducing total turnover for the organization.
- Actively seeking out individuals in disadvantaged groups may be an opportunity to find applicants for roles that are difficult to fill.
- The employer has the opportunity to do good in the community by helping people find jobs who may have otherwise been discouraged in their job search.
- The employer may be able to utilize the costs savings to offer additional benefits to all employees.
What has been your experience? Does your organization actively seek applicants who would qualify your organization for the WOTC?