Work Opportunity Tax Credit (WOTC) - Helping employees and employers
The Work Opportunity Tax Credit is part of the initiative to provide incentives for workplace diversity and opportunities for targeted groups who consistently face barriers to employment. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the WOTC for all targeted group employee categories if the individual began or begins work with the employer between December 31, 2014 and January 1, 2020. The PATH Act also added a new targeted group category to include qualified long-term unemployment recipients.
Targeted Groups for purposes of the WOTC are:
- Qualified IV-A Recipient
- Qualified Veteran
- Designated Community Resident (DCR)
- Vocational Rehabilitation Referral
- Summer Youth Employee
- Supplemental Nutrition Assistance Program Recipient
- Supplemental Security Income Recipient
- Long-Term Family Assistance Recipient
- Qualified Long-Term Unemployment Recipient
How To Begin
Before the credit can be claimed, the employer needs to file Form 8850 for pre-screening and certification to the appropriate state workforce agency within 28 days after the worker begins to verify the individual qualifies for the specific target group. Once approved, the credit can be claimed by eligible employers as a general business credit on Form 3800.
How Much Is the Credit?
The amount of the credit can vary depending on which target group the individual is part of, plus on the number of hours worked, the amount of qualified wages, and the qualified wages cap for the target group of the new hire. For example, the max credit for a Summer Youth Employee is $1,200 while certain military veterans could have a max credit of $9,600.
Are There Any Limits?
One limit for the credit is the entity’s income tax liability and social security tax owed. Also, no credit is allowed for an employee who works less than 120 hours. If the employee works between 120-400 hours, the credit is 25% of first year wages up to the ceiling of the target group. Over 400 hours, the credit is 40% of first year wages up to the amount determined by the target group. For example, the qualified ex-felon target group has a qualified first-year wages cap of $6,000, making the max credit equal to $6,000 multiplied by 40 percent, or $2,400.
If you want more information on the WOTC, additional details for the target groups or need help with tax planning and preparation, contact our tax professionals at The Innovative CPA Group at 203-489-0612. Or contact us online.