The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
The program is intended to entice businesses to hire members of hard to employee target groups in exchange for Federal tax credits.
Credits range from $750 for Summer Youth Employees to $9,600 for certain veterans. Whoa!
S Corps & LLC's can claim the credit. It was recently extended for five years with the PATh Act. Businesses can file in real time with online approval process, which will speed up processing at the state level significantly. Non Profits 501cs who hire veterans under the Vow to Hire Heroes Act can apply the credit to the Employer Contribution of SS Tax.
The credit is employee specific and eligible employees must be certified and claims filed within 28 days of hiring date.
25% of $6,000 of first year wages (*25% of $3,000 for Summer Youth Employee)
40% of $6,000 of the first year wages (*40% of $3,000 for Summer Youth Employee.
Is it illegal to ask employees if they fall into one of the WOTC categories?
Yes, asking applicants if they fall into some of the WOTC categories during the hiring process would violate employment law, but this is not an insurmountable issue. It is best to work with an outside vendor to screen and process WOTC applications. Most vendors use phone or online tools that allow employees to self-identify their classification. The vendor then processes and submits Forms 8850 and 9061 for the employer.
Eligible Hire Groups:
1. Qualified Temporary Assistance for Needy Families (TANF) Short Term & Long Term
2. Qualified Veterans (with service-connected disability, unemployed or receiving SNAP benefits
3. Qualified Ex-Felon
4. Designated Community Resident (Age 18-39)
(Federal Empowerment Zones & Rural Renewal Counties)
5. Vocational Rehabilitation Referrals
6. Summer Youth Employee (Age: 16-17, May to September Cycle)
7. Supplemental Nutrition Assistance Program (SNAP) (Age 18-39)
8. Supplemental Security Income (SSI) Recipients
9. Long Term Unemployment Recipient's
Thorough Tax Tax Consultants can prepare, submit and manage your 8850 applications and calculate your credits.
Contact Miguel Matos, EA or Gabriel Sanchez, CMA, EA for further insight.