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Have you heard of the Work Opportunity Tax Credit? It’s a federal tax credit available to businesses that hire certain individuals from welfare or unemployment public assistance programs. The credits can be worth thousands of dollars. But how do you know you qualify for Work Opportunity Tax Credit?
What Is Work Opportunity Tax Credit?
The WOTC was established by Congress in 1996 to encourage employers to hire individuals from target groups that have consistently faced significant barriers to employment. For example, youth who have not completed high school or veterans with disabilities are two groups of people who often struggle to find jobs. The WOTC offers employers a tax credit for hiring these individuals over other applicants. This makes hiring these individuals more cost-effective for businesses than simply hiring applicants without special needs.
Who Is Eligible for the Work Opportunity Tax Credit?
In order to qualify for the Work Opportunity Tax Credit, your organization must meet work opportunity tax credit screening and employ the following individuals:
Veterans
The WOTC applies to veterans who have been unemployed for at least four weeks but less than six months and have received a discharge that is other than dishonorable. To be eligible for the WOTC, an employer must hire a veteran within 12 months after his or her discharge from active service in the U.S. Armed Forces.
Qualifying ex-felons
Qualifying ex-felons or ex-felon offenders (an individual convicted of a felony). An employer can claim the WOTC if it hires an eligible ex-felon within one year after his or her release from incarceration and within two years after his or her sentence was completed, including probation or parole time served under state law.
TANF Recipients
This includes anyone currently receiving Temporary Assistance for Needy Families (TANF). TANF recipients can be employed by either your business or another business that participates in the WOTC program.
Who Does Not Qualify for Work Opportunity Tax Credit?
While many people qualify for WOTC, there are some who do not. The following are some examples of those who do not qualify for WOTC:
Former Employees
Former employees do not qualify for the credit either. If you fire someone and then rehire them within one year of firing them, they do not qualify for this tax credit.
Relatives
Relatives of an employer’s owner or officers do not qualify for this credit. This includes brothers, sisters, sons, and daughters. It also includes parents-in-law, grandparents, and other relatives who are closely related to the employer or any of its owners. Even if they have no ownership interest, they still may not qualify as employees because they don’t work for your business.
How Does a Business Claim the WOTC?
If your business qualifies for the WOTC, you can claim it when you file your federal tax return. To claim the credit, you must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit (or Form 652-B if you are eligible to use ETA Form 9061), with your state workforce agency. The form must be submitted with your state workforce agency’s certification of eligibility. The certification process is free and easy to use, but it does take some time. You should start early in order to avoid delays or problems with your application.
How Long Can You Claim WOTC?
The Work Opportunity Tax Credit (WOTC) is active until December 31, 2025. If you hire someone who qualifies for the work opportunity tax credit, you may be eligible for a tax credit worth between $1,200 and $9,600 per employee hired (depending on the target group).
Industries That Qualify for the WOTC
All industries are welcome to apply for the WOTC, although the main industries that easily qualify for WOTC are those that hire low-skill labor; these industries include:
- Restaurants: This includes full-service restaurants, quick-service restaurants, and bars.
- Construction industry: This includes general contractors, construction managers, specialty trade contractors, residential remodelers, and other building trades.
- Transportation: This includes trucking companies, bus companies, and any other business that transports goods or people.
- Hospitality: This includes hotels, motels, and bed-and-breakfasts with at least 30 rooms available for rent.
The Work Opportunity Tax Credit (WOTC) is credit employers can claim for hiring individuals from certain target groups who have consistently faced significant barriers to employment. Employers may claim the WOTC as an incentive to hire and train veterans, members of families receiving Temporary Assistance for Needy Families (TANF), individuals receiving Supplemental Security Income (SSI), Food Stamp recipients, ex-felons, low-income people living in empowerment zones, and qualified long-term unemployment recipients.
