An Employer’s Work Opportunity Tax Credit (WOTC) Guide

work opportunity tax credit, wotc
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.
Companies normally ask candidates during the job offer to complete a Form 8850 which determines if an employer has hired an employee who might be eligible for a WOTC. The second page of the 8850 is completed on the employee’s date of hire. An ETA Form 9061 or 9062 must also be completed by the employer. The forms need to be completed, signed, and submitted to the IRS and to your state workforce agency within 28 calendar days of the employee’s start date. The DOL has an instructional guide that supplements the 8850 forms I normally suggest that employers read.

Amount of Employer WOTC Tax Benefit

Employers can receive a tax credit normally between $2,400 t0 $9,600 for each employee who meets the WOTC requirements that are hired. The credit amount depends on the number of hours worked as well as the type of assistance benefits and length of benefits the individual received.
Most applicant tracking systems have this baked into their existing hiring process. Companies will need to activate as it requires employers to ask specific questions that trigger eligibility. As a reminder, paperwork must be submitted to the IRS and ETA within 28 calendar days of the new employee’s date of hire.

More About the Work Opportunity Tax Credit

Under the Work Opportunity Tax Credit, employers can hire eligible employees from the following target groups and receive a tax credit

  • Unemployed Veterans (including disabled veterans)
  • Temporary Assistance for Needy Families (TANF) Recipients
  • 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
  • Summer Youth Employees (living in Empowerment Zones)

The tax credit itself is equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs. Employers will earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours. The DOL has a handy WOTC Calculator to see how much your business can earn in tax credits which would be extremely helpful if employers were able to submit 8850 documents for the WOTC credits for any hires made in the calendar year.

WOTC Resources

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Jessica Miller-Merrell

Jessica Miller-Merrell

Jessica Miller-Merrell (@jmillermerrell) is a workplace change agent, author and consultant focused on human resources and talent acquisition living in Austin, TX. Recognized by Forbes as a top 50 social media influencer and is a global speaker. She’s the founder of Workology, a workplace HR resource and host of the Workology Podcast.

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Comments

  1. I read your blog and there was a question about hiring disabled. There is a separate federal program called the
    Ticket to Work Program. The program is to get people off ssi or ssdi. But it does not work that way
    the workers who are on ssi or ssdi will only work up to 20 hrs anymore and the state or federal gov.
    takes a bite out of their check. So it is basically a spending money program which is not penalized
    unless you work more than 20 hrs.
    the WOTC and Ticket programs are just 2 of several work programs. WOTC is all about zones of depressed
    areas of the cities.
    These programs fit retail stores to the “T”. Retail employers will churn out these people based on performance
    and also likeablility to the store manager. The rewards are great anywhere from 25 to 40 percent of the worker
    wage from a couple months to a year. The employer churns these people out to get new tax deductions with
    new workers. Just one large box store if managed right with hiring wotc and Ticket to work people can save up to $1.5 million dollars a year by this constant churning process.

    There is a ex-felon work program and the company hiring has to take an insurance policy out with the state
    sponsoring the ex-felon, it actually costs the hiring company extra but they save on the tax deduction after
    1 or 2 years. 2 years is the max for any hiring from these job programs. Some may stay longer and
    become full time hires who are part of the store clique or social club or manager’s pet association.

  2. One thing I would like to mention related to WOTC is employer discreet discrimination especially in retail.

    The manager of a store can employ mystery shopper to get rid of an employee. Now the manager might
    pretend that he does not know but there are ways of getting shoppers he knows to work for him in order
    to get an employee to resign – it’s part of the churning of employees. The mystery shopper will make the
    employee look stupid, insult the employee etc….Mystery shoppers are a training tool and a write off for
    the store but in most cases it is used to get rid of employees. Stores are not really looking for people
    unless it is the beginning of spring and summer when most of the business is generated.

    Retail store always want new employees. If an employee stays around and the manager can’t afford to
    hire permanently it is always a headache for store management. Most retail stores want part time people
    because they are cheaper, no benefits etc….Overhead is a four letter word. If there are a lot of full time
    people, it is really hard to get rid of them since they are most likley good friends of the manager or assistant
    manager.

    I have encountered in interviewing and applying for work that stores do a “means test”. They want to
    know where you live and why you left another store. If you live in a better area than the store manager
    you might not be on good terms with the store manager and this goes with the rest of the workers you
    are in contact with.

  3. You write about the formalities of the WOTC federal tax credit. You got to remember that the retail giants have
    this down pat.
    With Ticket to Work program there is no need for doctors letters to prove disability. It is not run right to
    begin with. Most of the people getting assistance want to be on assistance. They will work but
    they want nothing taken out of their ssi check. This program helps people on ssi or ssdi get extra money
    and the retail stores really benefit from the program too.

  4. A lot of jobs use “means testing” as a way of excluding people who do not come from empowerment zones (ie.
    low income neighborhoods) and are WOTC employees who will provide tax deductions for the company.
    this is unfortunately a form of discrimination which effects those who are not wotc candidates and come
    from more middle class parts of the city. Retail companies are one of the largest employers in many states and like
    government agencies use this “means testing” to filter out those who will not provide a tax deduction or
    “fit” with the socioeconomic background of the rest of the workforce at the company. It is unfortunate that
    this is the real scenario in country which has a lot of immigrants both legal and illegal who can use
    this Federal program. These companies actually want this employment group and will even go at lengths to
    sponsor non-citizens over citizens who were born and lived in the USA for decades.

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