What Is the Work Opportunity Tax Credit (WOTC)?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that’s available to employers that hire individuals from certain targeted groups. That inc🔯lu💮des people who have faced significant barriers to employment.

This tax credit is meant to encourage diversity in the workplace while also making jobs more accessible to specific segments of the workforce.

Understa✅nding the Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) is administered jointly by the U.S. 澳洲幸运5官方开奖结果体彩网:Department of Labor (DOL) and the 澳洲幸运5官方开奖结果体彩网:U.S. Treasury through the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS). The DOL provides grant funding and policy guidance to state agencies that oversee the certification process, while the IRS is responsible for managing tax-related requirements for claiming the credit.

The Protecting A🐼mericans from Tax Hikes Act♔ of 2015 (PATH Act) allows eligible employers to claim the WOTC retroactively for eligible employees from targeted groups who were hired between December 31, 2014, and December 31, 2020. Whether a business can claim the credit is based on the category of workers it hires, the wages those workers are paid in their first year of employment, and the number of hours they work.

Types of Workers Who Are Eligible

Employers can only take advantage of the Work Opportunity Tax Credit if they hire from certain targeted groups. According to IRS guidelines, targeted groups include:

• Individuals who receive Temporary Assistance for Needy Families (TANF) benefits under Part A, Title IV of the Social Security Act
• Qualified veterans, including those receiving 澳洲幸𓄧运5官方开奖结果体彩网:Supplemental Nutrition Assistance Program (SNAP) benefits, those who are unemployed, and those who are unemployed and entitled to compensation from a service-connected disability
• Qualified ex-felons
• Designated community residents who are at least age 18 and under 40 and live in an empowerment zone, enterprise community, or renewal community
• Individuals with physical or mental disabilities who have been referred for work after completing rehabilitative services
• Summer youth employees
• Supplemental Nutrition Assistance Program (SNAP) recipients
• 澳洲幸运5官方开奖结果体彩网:Supplemental Security Income (SSI) recipients
• Long-term family assistance recipients
• Qualified long-term unemployment recipients

Required Certification Forms

Employers are required to certify that a potential employee is a member of a targeted group in order to claim the Work Opport♏unity Tax Credit. That involves filling out different forms, with information from both the employee and the﷽ employer.

IRS Form 8850

One form that needs to be filled out is .

Form 8850, Page 1, must be filled out by the employeeᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ, who must provide their:

• Name
• Address
• 澳洲幸运5官方开奖结果体彩网:Social Security number
• Age
• Certification status (i.e., which targeted group they belong to)

Form 8850, Page 2,ﷺ re🍃quires the employer to provide:

• Their contact information
• The date the employee was offered a job
• The date the employee was hired
• The date the employee started work

Both the employee and the employer must sign Form 8850 before the employer files the form with the employer’s state workforce agency. This must be done within 28 days after the employee they’re claiming the credit for begins working.

DOL Form 9061

A second form has to be completed, this time for the Department of Labor. is completed by the employee, and the employer has to verify that the information is correct using supporting documents. Such documents may include, for example, a copy of the employee’s birth certificate, military discharge papers, or records of receiving SNAP or SSI benefits, depending on which targeted group they belong to.

If an employee has already been conditionally certified, meaning that they’ve been tentatively identified as belonging to a target group, the employer can complete instead. Conditional certification decisions are made by the employer’s state workforce agency, and Form 906♑2 serves as an official record of precertification. Form 9061 or 9062 must be submitted by the employer when they send in Form 8850.

Advantages and Disadvantages

Tax credits can help businesses reduce their tax liability, which can be helpful to the bottom line. That’s true for the Work Opportunity Tax Credit or any other ty𒀰pe of business tax credit. 

Another advantage of the credit has to do with increasing diversity in hiring. From a worker’s perspective, this tax credit c🌳ould make finding work possible for certain groups that have otherwise been overlooked in the hiring process. 

On the other side, the biggest challenge for employers may simply be meeting the certificatio༒n and filing requirements. While the paperwork involved isn’t complicated, employers have to ensure that they’re filing forms correctly and on time to prescreen and certify workers initially. They also have to keep accurate 𓄧records of their employees’ hours and wages earned in the first year of work to claim the credit.

Claiming the WOTC

Once an employee is certified, employers can claimꩲ the Work Opportunity Tax Credit on their income tax returns. This requires filing: 

• IRS Form 3800, General Business Credit
• 澳洲幸运5官方开奖结果体彩网:IRS Form 1040, 1040-SR, 1041, 1120, etc.

To calculate the credit, employers must determine the number of hours worked by the employee and their wages for the first year of employment. The amount of credit an employer can claim is limited to the amount of the business income tax or Social Security tax owed.

The Bottom Line

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers that hire individuals from certain targeted groups. The groups include people who have faced significant barriers to employment. The WOTC is meant to encourage diversity in the workplace while also making jobs more accessible to specific segments of the workforce.