How Small Biz Can Win with the WOTC Program
The Work Opportunity Tax Credit (WOTC) encourages the employment of populations that need a helping hand by providing an incentive: You reduce your overall tax liability while offering employees valuable work experience.
Among eligible populations are recipients of Supplemental Security Income (SSI) and welfare/ food stamps (SNAP), workers referred by a vocational rehabilitation agency, veterans, ex-felons, and individuals living in HUD-designated empowerment zones or Rural Renewal Counties. The target group has been expanded to include disadvantaged teens as well.
A by-product of the 1996 Small Business Job Protection Act, the WOTC encourages you to hire as many people within the target populations as you wish, and you receive tax savings for all who qualify. A recently added category aims to aid long-term unemployment recipients who have been unable to find work for at least 27 weeks and have received state or federal unemployment benefits during part or all of the time.
Qualified wages paid to the employee during the first year of employment form the basis of the tax credit. There's generally a cap on wages that can be used for the credit calculation, and the maximum tax credit can vary, depending on the employee hired:
- For employees working at least 120 hours but fewer than 400 for the first year, the credit is 25 percent of qualified wages.
- For those working more than 400 hours, the credit is 40 percent of wages.
- If you hire an ex-felon, you can potentially receive a $2,400 tax credit for the year. Guidelines state it must be within one year of the conviction or prison release.
WOTC is administered by the Department of Labor's Training Administration and provides support by reimbursing a company for a percentage of a worker's wages for up to two years. The maximum amount of reimbursement varies, based on the background of the individual hired.
Local American Job Centers can help identify potential hires who meet WOTC tax credit criteria, and they may be able to provide additional support — case management and accommodation coaching, for example. This is available through the Social Security Administration's Ticket to Work program.
By hiring workers who face significant barriers to employment, you are helping fellow Americans move from economic dependency to self-sufficiency. Eligible businesses claim the credit on their income tax returns.
These are just the basics of a complex program. Our employment tax experts can help you navigate these tax credits and make sure you stay current with the latest provisions.