What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit is a government tax incentive offered to businesses for hiring individuals from certain target groups. There are 10 target groups. The tax credits range from $2,400 to $9,600 for each qualified employee. There is no limit to the amount of tax credits that you can earn. The employee must be a new hire and the WOTC application must be submitted within 28-days of the employee’s hire date. The IRS guidelines do not allow you to go back to capture tax credits on previously hired employees, so it is very important to set up the WOTC program as quickly as possible.
How much can you earn from the WOTC?
The tax credits range from $2400 to $9,600 for each qualified employee. The amount of tax credits is based upon the number of hours worked during the employee’s first year of employment. If the employee works between 120 to 399 hours, then you earn 25% of the first year gross wages. If the employee works 400 hours or more, then you earn 40% of the first year gross wages. The IRS allows the tax credits to be carried forward for up to 20 years. This is extremely valuable as your business continues to grow because this ultimately reduces your tax liability.
Who qualifies for the WOTC?
The WOTC program was created to help create new jobs and to help individuals from certain target groups gain employment. The target groups include unemployed veterans, disabled veterans, food stamp recipients, designated community residents, vocational rehabilitation referrals, ex-felons, supplemental security income recipients, and long-term unemployment recipients.