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Your Business Can Qualify for the Work Opportunity Tax Credit (WOTC) When You Hire Certain Workers
The Work Opportunity Tax Credit (WOTC) is a federal income tax credit that is offered to employers as an incentive to hire individuals who are members of eight targeted groups that have traditionally faced significant barriers to employment. Employers electing the credit must reduce the wage deduction on their business tax return by the amount of the Work Opportunity Tax Credit taken. Unlike the wage deduction, WOTC is applied against an employer's bottom-line liability and offsets taxes due on a dollar-for-dollar basis. WOTC replaced the Targeted Jobs Tax Credit Program. Work Opportunity Tax Credit (WOTC)
What New Hires Can Qualify Employers for WOTC?
Welfare Recipients -- members of a family that received Temporary Assistance for Needy Families (TANF) for a total of at least nine of the 18 months before date of hire
Food Stamp Recipients -- Youth, 18-24 year-old, whose family receives food stamps for at least six consecutive months before date of hire or for at least three of the five months before date of hire and their food stamp eligibility expired
Veterans --who are members of a family that received food stamps for at least three consecutive months during the 15 months before date of hire
Vocational Rehabilitation Referrals -- disabled persons who completed or are completing rehabilitative services approved by a state or the U.S. Department of Veteran Affairs
Youth -- 18-24 year-old residents of one of the 105 federally designated urban or rural Empowerment Zones or Enterprise Communities (EZ/EC)
Summer Youth -- 16-17 year-old Empowerment Zones or Enterprise Communities (EZ/EC) residents hired as Summer Youth Employees
Ex-felons who are members of a low-income family
SSI Recipients -- individuals who received Supplemental Security Income benefits for any month during the 60 days before date of hire
The Work Opportunity Tax Credit
Qualified wages are capped at $6,000 for all WOTC target groups except Summer Youth, whose wages are capped at $3,000.
For new hires employed 400 or more hours is 40% of qualified wages for the first year of employment;
Employers can receive a tax credit of up to 40 percent of the first $6,000 in qualified first-year wages for a maximum credit of $2,400.
Credit for new hires employed 120 to 400 hours is 25%.
Even those employers who cannot qualify for the maximum credit can receive a partial credit of 25 percent of the first $3,000 in qualified first-year wages paid during the 90-day summer working period. In order to be eligible to receive the credit for Summer Youth Participants, the employee must have a principal place of residence within an Empowerment Zone or Enterprise Community. But the 25 percent does not only apply to Summer Youth. It applies to all groups with work hours of 120-399.
An individual is not considered a member of a targeted group unless your state employment security agency certifies him or her as a member. This certification requirement can be satisfied in either of two ways:
On or before the day on which the individual begins work for you, you received a certification from your state employment security agency that the individual is a member of a targeted group, or
On or before the day you offer employment to an individual, you complete Form 8850, Work Opportunity Credit Pre-Screening Notice and Certification Request, and send it to your state employment security agency no later than the 21st day after the individual begins work. You must receive the certification before claiming the credit.
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