Would your business like a federal tax credit of up to $9,600? Sounds good, right?
The challenge is many employers don’t know about the Work Opportunity Tax Credit (WOTC) and miss out. It’s a federal tax credit for companies that have hired employees facing employment barriers. Essentially the federal government is subsidizing a portion of the qualified worker’s wage.
How does WOTC work?
Once you’ve hired a new employee, make sure your onboarding process includes screening for WOTC eligibility. There are 10 target groups, including veterans, recipients of certain public benefits, ex-felons, Supplemental Nutrition Assistance Program (SNAP) recipients, long-term Temporary Aid for Needy Families (TANF) recipients and more. The tax credit amount varies from $1,200 to $9,600 depending on employee circumstances. They should check all boxes that apply.
Here’s an overview of time-sensitive process you’ll need to follow to qualify for the tax credit.
Step 1: Use Form 8850 to pre-screen during onboarding
- New hire answers screening questions on or before the day a job offer is made
- Employer completes the form no later than the day the job offer is made
- Both employer and applicant sign Form 8850 and submit it to your state workforce agency (SWA) no later than the 28th day after the individual starts working for you
Step 2: WOTC coordinator for the SWA certifies whether or not the job applicant is a member of the targeted group.
Step 3: You’ll then receive certification from SWA. Keep this documentation on file.
Step 4: Claim work opportunity credit with Form 5884 after new hire has started working
- Include qualified first- and/or second-year wages you paid during the tax year
- Employees must work a minimum of 120 hours to be eligible for the WOTCCredit
- You can choose to claim/not claim the credit any time within 3 years from the due date of your return
- Tax credit amounts:
- 25 percent of the qualified employee’s first year wages if the employee works between 120 and 400 hours of that year
- 40 percent of the employee’s first year wages if the employee works more than 400 hours of that year
Does WOTC benefit an employee?
Employees benefit by getting hired. The tax credit benefits the employer and isn’t shared with the employee.
How many employees can qualify for WOTC?
If you hire someone from the targeted groups list, you qualify for WOTC. There is no limit on the number of employees.
After learning about WOTC, businesses can’t wait to take advantage of this amazing program. The challenge is following all the time sensitive requirements to ensure eligibility. There’s so much to do! That’s when you turn to MidwestHR. It’s one of our many services designed to help you save time and money.
MidwestHR, a top CPEO in Illinois (certified professional employer organization), constantly monitors tax laws impacting our clients’ businesses. We examine the changes, alert clients and provide recommendations. By outsourcing your HR to us, you can stay focused on your business knowing we are monitoring legislation changes going into effect. Give us a call at 630-836-3000 to learn more.