Ask the Expert: How can you use the Work Opportunity Tax Credit (WOTC) to fill positions?
Each month, we will tackle one of those burning questions that keeps you awake at night or causes heartburn during the day. Our team of experts will help you stay in the know. We'll cover topics like recruiting trends, legislation, workplace issues and more. You'll get information and answers that help you hire and retain top performers.
This week’s question is about the WOTC. We all know the labor market is tight. This is the perfect time to dive into an area you may have overlooked as a source of candidates.
What is the WOTC?
Created by Congress in 1996, the WOTC is a tax credit for hiring certain American job seekers who face barriers to employment. These job seekers include Veterans, ex-felons, qualified Supplemental Nutrition Assistance Program (SNAP) benefit recipients, qualified Supplemental Security Income (SSI) recipients, and qualified long-term unemployed. The WOTC offers a tax credit to offset some of the compensation costs of a new hire.
How does it help employers? The WOTC helps employers in several ways:
Tax credits: Employers can claim a tax credit for hiring individuals from target groups. The credit can range from $2,400 to $9,600 per eligible employee.
Cost savings: By taking advantage of the WOTC, employers can reduce their overall labor costs. The tax credit provides a dollar-for-dollar reduction in the employer's tax liability, resulting in direct savings.
Diverse workforce: The WOTC promotes diversity and inclusion in the workplace. By hiring individuals from targeted groups, employers can foster a more inclusive environment. Another benefit is the unique perspectives and skills these individuals bring to the table.
How do you get the WOTC Certification? Here is a brief overview of the process:
Pre-screening: Before hiring someone from a targeted group, complete IRS Form 8850. This form is used to pre-screen and determine the eligibility of the job applicant for the WOTC.
Employee verification: The candidate completes their portion of the pre-screening form. This can be part of your application process. The employer submits it to the appropriate state workforce agency (SWA) within 28 calendar days of the employee's start date. The SWA will verify the information and certify the eligibility of the individual.
Certification: If approved, the SWA will issue a certification to the employer. The certification confirms that the employee is a member of a targeted group and qualifies for the WOTC.
Tax credit claim: Once the employer receives the certification, they can claim the WOTC on their federal income tax return.
Recordkeeping: Employers must maintain proper records and documentation including the completed Form 8850, any supporting documents required by the SWA, and records of the employee's employment dates, hours worked, and wages earned.
It sounds like a lot. But there are plenty of available resources like this handy Reference Guide. It's important to note that the certification process and requirements may differ slightly between states. Employers should consult with their state workforce agency or a tax professional to ensure compliance with the specific rules and procedures in their state.
Our team of experts is ready to assist you with recruiting from this often-overlooked group of potential candidates. Contact us at email@example.com or 703-362-0175 to set up a time to speak with one of our experts.