What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) rewards businesses that hire individuals from certain target groups. These are people who experience barriers to employment, so by incentivizing businesses to hire them, both the business and the individual benefit. The tax credit allowance varies depending on the target group and number of hours worked, but could be as much as $9,600 per eligible employee. There is no limit to the number of eligible employees that employers can claim.
Who Qualifies for the Work Opportunity Tax Credit?
Businesses that hire new employees in certain target groups may qualify for a Work Opportunity Tax Credit (WOTC), a federal incentive program for employers who hire workers with barriers to employment. The program is administered jointly by the US Treasury Department and US Department of Labor.
Employees who belong to these groups may qualify:
- TANF recipients
- Veterans
- Ex-Felons
- SNAP recipients
- SSI recipients
- Long-term unemployment recipient
- Designated community and empowerment zone residents
- Vocational rehabilitation referral
Businesses may claim a tax credit of as much as $9,600 for each new hire that is certified as WOTC-eligible and works the required minimum hours or days for their group. The credit is calculated as a percentage of wages paid. See the latest list of target groups published by the US Treasury Department.
Can a business file for WOTC for current employees?
No. This program is available only to new hires.
What deadlines must be met to qualify for WOTC?
- The new hire must be informed about the program no later than their start date.
- Within 28 days of their start, all paperwork and supporting documentation must be submitted.
How is the tax credit calculated?
The tax credit calculation is calculated based on several factors, including the specific target group and total hours worked. Information on WOTC calculation is available on the WOTC Program page.
Do employers have to participate in WOTC?
The program is optional, but why give up free money?
Do employees have to participate in WOTC?
No, the program is optional for employees, but it benefits them because it increases their value to potential employers.
How do I gather WOTC information from new employees?
Employers can build the Work Opportunity Tax Credit (WOTC) into their onboarding process. The employee must be told about the WOTC program when or before being hired. If the employee might qualify, then employers need to gather the details needed for a claim. Automated employee onboarding makes this process easy by guiding new hires through a series of questions that determine qualification and gather the necessary details. This process must be complete within the first 28 days of employment.
Additional resources
- WOTC Fact Sheet
- US Department of Labor WOTC Resources
- WOTC Is Like Free Money (Offset Your Taxes $2K Per Eligible Employee)
