What Is the Work Opportunity Tax Credit (WOTC) and How Does It Benefit Employers?


What Is the WOTC?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain individuals from target groups with significant employment barriers (e.g., veterans, ex-felons, etc.). Employers can claim about $9,600 per employee in tax credits per year under the WOTC program. Additionally, there is no set limit to the number of individuals an employer can hire in order to claim the tax credit.

How Does It Work?

 The tax credit employers can claim is dependent on a few factors:

  • The specific target group of the individual hired
  • The wages paid to that individual during his or her first year of employment
  • The number of hours the individual has worked in first year of employment

There is also a maximum tax credit that can be earned. For specific information regarding this, please click here.

Who Can I Hire?

Employers can hire from the following target groups:

  • Veterans
  • TANF recipients
  • SNAP (food stamp) recipients
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational Rehabilitation Referrals
  • Ex-felons
  • Supplemental Security Income Recipients
  • Summer Youth Employees (living in Empowerment Zones)

For more information about the WOTC target groups, please click here.

How Are Tax Credits Calculated?

Generally, an employer can earn a tax credit 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 can earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours.

For more information on the maximum tax credits associated with each WOTC target group, please click here.

Given all of the benefits the WOTC program provides for both employers and employees, it’s a program you should consider with your next hire.

 

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Alisiana Peters

Author: Alisiana Peters

Alisiana is a senior marketing coordinator at HiringThing, an award-winning online recruiting software provider dedicated to changing the way businesses hire talent. Questions? Contact HiringThing Marketing.