If you’re preparing to hire new employees, you may be interested in the Work Opportunity Tax Credit. Below, we’ll explain what the WOTC is, how it can help your business, and what you need to do to apply.
What is the Work Opportunity Tax Credit?
The WOTC is a federal tax credit available to employers who hire individuals from certain groups. The credit was created in 1996 to incentivize employers to expand their applicant pools and hire people who’ve historically had a tougher time finding work.
Over the course COVID-19 pandemic, many small businesses in America have been suffering. In response, the federal government has released legislation to establish new tax credits and expand existing ones in order to provide businesses financial relief during this challenging time.
The government recently reauthorized the WOTC and extended it until December 31, 2025, giving state workforce agencies over $18 million to support WOTC certification for fiscal year 2021.
As a business owner, the WOTC is a great opportunity to diversify your hires, save money on taxes, and help job candidates who’ve struggled during the coronavirus pandemic.
What are the qualifying groups?
To be eligible for the WOTC, you have to hire people who fall into one of the 10 qualifying groups, as defined by the IRS:
1. Qualified IV-A recipient: This refers to individuals who receive family assistance as part of a state plan under the Temporary Assistance for Need Families program.
2. Qualified veteran: There are a number of different veterans who qualify under the ROTC. They include:
Veterans who receive help under the Supplemental Nutrition Assistance Program (SNAP) for at least three months during the first 15 months of their employment.
Veterans who are unemployed for a total period of at least four weeks but less than six months in the one-year period before their hiring date.
Veterans who are unemployed for a period of at least six months in the one-year period before their hiring date.
Veterans who are disabled and entitled to compensation for their service-related disability; they must be hired no more than one year after being discharged or released from active duty in the U.S. Armed Forces.
Veterans who are disabled, entitled to compensation for their service-related disability, and unemployed for a period totaling at least six months in the one-year period before their hiring date.
3. Qualified ex-felon: This refers to people who are hired within a year of being convicted of a felony or being released from prison for the felony.
4. Designated community resident: A designated community resident is anyone who is between 18 and 39 years old on their hiring date and lives in either an empowerment zone, an enterprise community, or a renewal community (we’ll explain what these are in detail later). The individual must continue to live in the location after they’re employed.
5. Vocational rehabilitation referral: This refers to anyone with a physical or mental disability who has been referred to an employer while receiving or after completion of rehabilitative services.
6. Summer youth employee: A summer youth employee must be at least 16 years old but under 18 on their date of hire or by May 1 of the year in which they were hired (whichever is later). They must live in an empowerment zone, enterprise community, or renewal community, and can only work from May 1 to September 15 (assuming they weren’t hired before May 1).
7. SNAP recipient: This refers to individuals who receive help from the Supplemental Nutrition Assistance Program, otherwise known as food stamps. To qualify, the person must be between 18 and 39 years old and be part of a family that received SNAP benefits for the previous six months or at least three of the previous five months.
8. Supplemental security income (SSI) recipient: This refers to anyone who received SSI benefits within 60 days of being hired.
9. Long-term family assistance recipient: This refers to individuals who are part of a family that received certain types of government assistance for specific periods of time.
10. Qualified long-term unemployment recipient: This refers to people who’ve been unemployed for no fewer than 27 consecutive weeks at the time of hiring, and who have received unemployment compensation during some or all of their unemployment period.
Keep in mind that you can’t take the tax credit for hiring family members who fall into one of the above categories. You also can’t apply the credit to former hires who are part of a qualifying group. They have to be WOTC-certified the first time they’re hired.
