The Work Opportunity Tax Credit

The Work Opportunity Tax Credit (“WOTC”) is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. The goal of the WOTC is two-fold: first is to help targeted workers move from economic dependency to self-sufficiency by earning a steady income and becoming contributing taxpayers, and second is to help employers reduce their income tax liability. There is no limit on the number of individuals an employer can hire to qualify and claim the credit, but there is a maximum tax credit that can be earned.

Created in 1996, the WOTC has been modified several times since its establishment, the most recent of which was the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) which retroactively reauthorized the credit for a 5-year period from December 31, 2014 to December 31, 2019.

The target groups of the WOTC are below. Each group has its own qualifications and applicable WOTC amounts.

  • Unemployed Veterans (including disabled veterans)
  • Temporary Assistance for Needy Families (TANF) Recipients
  • Food Stamp (SNAP) Recipients
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational Rehabilitation Referred Individuals
  • Ex-Felons
  • Supplemental Security Income Recipients
  • Summer Youth Employees (living in Empowerment Zones)
  • Qualified Long-term Unemployment Recipients

Employers qualifying for the WOTC can typically 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. The 25% credit is if the employee works at least 120 hours, and the 40% credit is if the employee works at least 400 hours. The total amount of WOTC is limited to 90% of business income tax liability or social security tax owed. Depending on the employee’s target group and the number of hours worked, the maximum credit ranges from $1,200 to $9,600.

If you believe your business qualifies for the Work Opportunity Tax Credit, please contact us. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent businesses for nearly 50 years. Our experts work closely with clients to ensure that they are taking advantages of all available credits and savings opportunities.

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