Established in 1996, the Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment, such as veterans, the physically and mentally disabled, former felons, and other groups in need. The benefits are two-fold: individuals receiving government assistance have more opportunities to take on a quality work position and become more self-sufficient, and employers receive compensation by means of a reduction in income tax liability.
Many states offer their own WOTC-equivalent opportunities; the amount of credit and the type of tax they offset varies by state. Depending on which target group the individual belongs to, the maximum credit per new hire can range from $2,400 to $9,600. Every year, employers claim over one billion dollars in tax credits under the WOTC program.
The WOTC Process:
- Each new hire completes an IRS 8850 form, online or paper version.
- Forms are submitted to the State Workforce Agency in the state that the employee works.
- The State Workforce Agency certifies that the employee is eligible for the credit.
- The employee must be retained for the minimum number of hours worked requirement.
- The tax credit is claimed on Form 5584.
- The credit is calculated based on the wages paid to the employee.
The process of WOTC can look overwhelming, but the benefits are worth making a call to ClarkSilva. Reach out today to talk options or ask some clarifying questions.