Leveraging Tax Incentives for Business Growth: A Guide to WOTC

The Work Opportunity Tax Credit (WOTC) presents a valuable opportunity for employers to receive tax credits for hiring from specific targeted groups, such as veterans and the long-term unemployed. The WOTC program plays a pivotal role in promoting a stable workforce and offering financial relief to employers during challenging economic times.

Understanding the program can help support workforce diversity and positively impact the lives of disadvantaged groups within the community. Explore these potential tax savings and learn how they may benefit your organization.

Understanding WOTC

WOTC is a point-of-hire federal tax credit meant to incentivize employing individuals from specific groups facing employment barriers. Taxable employers claim WOTC as a general business credit, with the ability to carry back the unused credits for one year and forward for 20 years, and it can offset the alternative minimum tax.

Tax-exempt organizations can also take advantage of WOTC for hiring qualified veterans, receiving a refund of Social Security taxes reported on their Form 941.

Employers interested in these benefits should properly understand the qualification criteria, maintain appropriate documentation, and integrate the credit processes into their hiring and financial practices.

Benefits of WOTC

WOTC offers a significant benefit to employers embracing inclusive hiring practices. As a federal hiring credit, it’s available to all for-profit businesses and tax-exempt organizations (for veteran target groups).

The credit amount can be substantial — reaching up to $9,600 per eligible new hire — contingent on the target group the employee belongs to and the hours they work during their first year of employment.

A critical step in capturing the WOTC is integrating WOTC screening into the employer’s hiring process. This strategic incorporation helps identify eligible hires who meet necessary conditions. A professional service provider can streamline WOTC compliance and help you navigate the complex paperwork and credit deadlines.

WOTC target groups include veterans, SNAP (food stamp) recipients, residents of Empowerment Zones or Rural Renewal Counties, ex-felons, and individuals receiving Supplemental Security Income, among others. By focusing on these groups, WOTC aims to promote diversity in the workplace and provide opportunities to those who might otherwise be overlooked.

For-profit businesses can use the credit to reduce their business income tax liability, while tax-exempt organizations — specifically when hiring qualified veterans — can apply it against payroll taxes. This flexibility allows a wide range of employers to benefit from WOTC, making it an appealing program for various organizations seeking to enhance their workforce while also receiving a tax benefit.

Claiming WOTC is time-sensitive and requires adherence to specific guidelines. Submitting Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) to the respective state workforce agency within 28 days of the eligible worker’s start date is a pivotal compliance requirement. Employers must be diligent in this process to avoid forfeiting the credit.

How we can help

By incorporating WOTC into their hiring practices, employers can not only diversify their workforce but may also reduce their tax liability.

CLA’s tax professionals can show you how to navigate the complex landscape of employment-related tax credits to add value and discover potentially significant tax savings for your organization. We can also help you find companion programs at the state and local levels to support your hiring needs.

Contact us

WOTC helps you invest in the long-term success of your employees. Complete the form below to connect with CLA.