The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive that Congress provides to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. The main objective of this program is to enable the targeted employees to gradually move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are compensated by being able to reduce their federal income tax liability. WOTC joins other workforce programs that help incentivize workplace diversity and facilitate access to good jobs for American workers.
Employers can hire eligible employees from the following target groups for WOTC:
Qualified IV-A Recipient – An individual who is a member of a family receiving assistance under a state plan approved under part A of title IV of the Social Security Act relating to Temporary Assistance for Needy Families (TANF). The assistance must be received for any 9-month period during the 18-month period ending on the hiring date.
Qualified Veteran –
- A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least 3 months during the first year of employment.
- Unemployed for a period totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.
- Unemployed for a period totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
- A disabled veteran entitled to compensation for a service-connected disability hired not more than one year after being discharged or released from active duty in the U.S. Armed Forces.
- A disabled veteran entitled to compensation for a service-connected disability who is unemployed for a period totaling at least six months (whether or not consecutive) in the one-year period ending on the hiring date.
Ex-Felon – A “qualified ex-felon” is a person hired within a year of:
- Being convicted of a felony or
- Being released from prison from the felony
Designated Community Resident (DCR) – A DCR is an individual who, on the date of hiring
- Is at least 18 years old and under 40,
- Resides within one of the following:
- An Empowerment zone
- An Enterprise community
- A Renewal community
- AND continues to reside at the locations after employment.
Vocational Rehabilitation Referral – A “vocational rehabilitation referral” is a person who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services pursuant to:
- A state plan approved under the Rehabilitation Act of 1973 OR
- An Employment Network Plan under the Ticket to Work program, OR
- A program carried out under the Department of Veteran Affairs.
Summer Youth Employee – A “qualified summer youth employee” is one who:
- Is at least 16 years old, but under 18 on the date of hire or on May 1, whichever is later, AND
- Is only employed between May 1 and September 15 (was not employed prior to May 1st) AND
- Resides in an Empowerment Zone (EZ), enterprise community or renewal community.
Supplemental Nutrition Assistance Program (SNAP) Recipient – A “qualified SNAP benefits recipient” is an individual who on the date of hire is:
- At least 18 years old and under 40, AND
- A member of a family that received SNAP benefits for:
- the previous 6 months OR
- at least 3 of the previous 5 months.
Supplemental Security Income (SSI) Recipient – An individual is a “qualified SSI recipient” if a month for which this person received SSI benefits is within 60 days of the date this person is hired.
Long-Term Family Assistance Recipient – A “long term family recipient” is an individual who at the time of hiring is a member of a family that meet one of the following conditions:
- Received assistance under an IV-A program for a minimum of the prior 18 consecutive months; OR
- Received assistance for 18 months beginning after 8/5/1997 and it has not been more than 2 years since the end of the earliest of such 18-month period; OR
- Ceased to be eligible for such assistance because a Federal or State law limited the maximum time those payments could be made, and it has been not more than 2 years since the cessation.
Qualified Long-Term Unemployment Recipient – A qualified long-term unemployment recipient is one who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during some or all or the unemployment period.
- 10-20% of new hires may be qualified if they are included in the target groups.
- Employees who are family members and people who have previously worked for you (rehires) are not eligible.
- The amount of the tax credit varies by target group. The tax credit for target groups A, B, C, D, E, G, and H is 40 percent of qualified first year wages up to $6,000 if the individual is retained for at least 400 hours. If the individual is retained less than 400 hours but at least 120 hours a 25 percent tax credit is available on qualified first year wages up to $6,000. The tax credit for target group I, long-term family assistance recipient, is 40 percent of first year qualified wages up to $10,000 and 50 percent of second year qualified wages up to $10,000. The individual must be retained at least 180 days or 400 hours. In certain circumstances you may be able to claim either the 40 percent of $6,000 tax credit or the 40 percent of $10,000 tax credit.
- Veterans with a service-connected disability unemployed for at least 6 months with the qualified wages cap increased to $24,000 and the maximum tax credit increased to $9,600.
- The WOTC amount an employer claims depends on the number of hours the employee works. All new employees must work a minimum of 120 or 400 hours. The credit is 25% of qualified first-year wages (up to $6,000) for those employed at least 120 hours but fewer than 400 hours, and 40% for those employed 400 hours or more.
- The legislation requires the application for the tax credit is received by the Department of Labor (DOL) within 28 days of the employees hire date.
- You can not retroactively claim WOTC on current employees. You need to apply within 28 days of the hire date,
- Re-hires do not qualify for tax incentives.
Audax HR can assess your new hires to see if they would possibly qualify. We can file the paperwork and take care of all the administration. This is money back to you!