Work Opportunity Tax Credit for employers

What you need to know about Work Opportunity Tax Credits (WOTC)

If you have thought about looking into work opportunity tax credits (WOTC), now is the perfect time. The transitional relief period for 2014 has been extended through April 30th.

Below you will find more information about the program, who qualifies, and how you can claim some of this money for your organization.

What is Work Opportunity Tax Credit?

The Work Opportunity Tax Credit is a credit opportunity that is available for employers that hire members of targeted groups. The goal is to enable these targeted individuals to gradually move from economic hardship to steady employment and self-sufficiency.

Employers do not receive a direct payment when they hire these individuals. Rather, they receive a credit to lower their federal income tax liability. WOTC can reduce the business costs for an employer while assisting those in need to find and retain a job.

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Who benefits from WOTC?

The targeted groups for WOTC include unemployed veterans and disabled veterans, Temporary Assistance for Needy Families (TANF) recipient, 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, and summer youth employees living in empowerment zones. Empowerment Zones are distressed urban and rural areas across America that are in need of revitalization.

What do employers need to claim WOTC?

Before an employer may claim WOTC, the employer will need to gather the specific information. Participation must be voluntary. Prospective employees or applicants are not required to provide this type of information to any employer. Once identified, the employer must obtain certification for that individual. An employer must request and receive certification that the new hire is a member of at least one of the WOTC target groups from its State Workforce Agency.

What WOTC tax credit can employers claim?

The WOTC tax credit amount that employers can claim depends three things:

  1. The target group of the individual hired.
  2. The wages paid to that individual.
  3. The number of hours that individual worked during the first year.

What is the maximum WOTC tax credit an employer can earn?

There is also a maximum tax credit that can be earned for each target group. Generally, the WOTC is about 40% of a qualified worker’s first-year wages for a maximum credit of $2,400 per employee.

  • For qualified veterans, the maximum credit depends on their classification with maximum credit ranging from $2,400 to $9,600.
  • For the long-term Temporary Assistance for Needy Families (TANF) Recipient target group, the credit is available to employers through the second year of employment after the employee works at least 400 hours.
  • For all other target groups, employees must work at least 120 hours in the first year of employment for the employer to qualify to claim the tax credit.

When does an employer need to submit WOTC forms?

Traditionally, employers only have a 28-day window from date of hire in which to submit the Form 8850 to the state employment security agency. The IRS just released a new Transitional Relief Period for all qualified 2014 new hires. This relief period allows employers to submit any WOTC certification requests until April 30. 2015 for any qualified individual hired between January 1, 2014 and December 31, 2014. The new IRS Transitional Relief Period allows employers to submit any 2014 WOTC requests until April 30th.

ApplicantPro can make the WOTC process easier with our Tax Credit Option. Employers can ask the information needed to qualify their applicants or new hires as part of the application or onboarding processes.

Learn more about how ApplicantPro can help with Work Opportunity Tax Credits.

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