What is WOTC?
WOTC (Work Opportunity Tax Credit) is a tax credit for employers who hire people from certain target groups. These target groups are specific groups of people who have faced trouble with employment. The purpose of WOTC is to help people in target groups become economically self-sufficient as they earn a stable income and become a contributive tax payer. In return for hiring and retaining workers from target groups an employer is eligible for a tax credit.
Target Groups
There are currently 9 target groups:
1. Veterans
2. Long-Term Temporary Assistance for Needy Families (TANF) Recipient
3. Short-Term Temporary Assistance for Needy Families (TANF) Recipient
4. Supplemental Nutrition Assistance Program (SNAP/Food Stamps) Recipient
5. Designated Community Resident
6. Vocational Rehabilitation Referred Individual
7. Ex-Felon
8. Supplemental Security Income (SSI) Recipient
9. Summer Youth Employee
These groups have certain requirements that the employee must meet to be eligible. You can find those requirements HERE.
How much is the credit?
So you have an employee that may meet the requirements for one of the target groups? Great! The next step is to submit all required paper work for the WOTC. First the employer and the employee have to fill out Form 8850 which covers the basics. Next the employer and the employee need to fill out ETA Form 9061, this form actually determines which target group the employee belongs to. ETA Form 9061 requires proof of the employee belonging to a target group.
The actual tax credit the employer gets depends on the target group the employee belongs to. Employers generally can earn a tax credit equal to 25% or 40% of a new employee's first-year wages, up to the maximum for the target group to which the employee belongs; however, there are 2 rules with this:
1. For all target groups except the long-term TANF recipient, employers will earn 25%, if the employee works at least 120 hours, and 40%, if the employee works at least 400 hours.
2. For the long-term TANF target group, employers will earn 40%, if the employee works at least 400 hours in the first year, and 50%, if the employee works at least 400 hours in the second year.
Visit HERE for maximum amounts.
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