How to Save Taxes for Your Business While Helping Your Community
The Work Opportunity Tax Credit (WOTC) is a unique program that benefits everyone involved. Businesses that hire qualified applicants receive a tax credit that offsets part of the first year’s wages for those individuals, and the employees receive enhanced job opportunities.
Here’s how it works:
If you hire employees from a targeted group (see list below), your business can receive a federal tax credit of 40% of the first $6,000 in wages paid to that individual within their first year of employment, as long as they work at least 400 hours.
While $2,400 is generally the highest tax credit available, up to $24,000 in wages can be taken into account for hiring certain qualified veterans. And even if the individual doesn’t work a full 400 hours, a partial 25% credit can be claimed if they worked at least 120 hours.
The WOTC is intended to promote the hiring of individuals who face employment obstacles because of poverty, disability, military service, long-term unemployment, or criminal history. Here’s the official list of targeted groups:
• the formerly incarcerated or those previously convicted of a felony;
• recipients of state assistance under part A of title IV of the Social Security Act (SSA);
• residents in areas designated as empowerment zones or rural renewal counties;
• individuals referred to an employer following completion of a rehabilitation plan or program;
• individuals whose families are recipients of supplemental nutrition assistance under the Food and Nutrition Act of 2008;
• recipients of supplemental security income benefits under title XVI of the SSA;
• individuals whose families are recipients of state assistance under part A of title IV of the SSA; and
• individuals experiencing long-term unemployment.
Employers of all sizes can claim the WOTC, including certain tax-exempt entities.
So why doesn’t everyone do this?
Certifying employees for the WOTC requires jumping through a few hoops. On or before the individual receives an employment offer, both the employer and employee need to complete Form 8850. The employer has 28 days from the employee’s date of hire to submit the Form 8850 to the appropriate state’s WOTC office in order for the state to certify the employee’s status. This process can be a bit challenging in the midst of all the other onboarding tasks required for new hires.
That’s why many businesses outsource their WOTC program. A WOTC vendor can assist your employees in completing Form 8850 at the time of hire, submit forms to your state within the time restrictions, and compile the certification results, ready for you to claim your tax credits at the end of the year. You get the benefits of tax credits without the stress of managing the program.
So don’t leave money on the table. Learn more about implementing a WOTC program for your organization today by contacting Marc Swearengin. You’ll be glad you did!