The Work Opportunity Tax Credit, or WOTC, is a general business credit that is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups. In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:
- is in their first year of employment;
- is certified as being a member of a targeted group; and
- performs at least 400 hours of services for that employer.
Thus, the maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be taken into account in determining the WOTC for certain qualified veterans. An employer cannot claim the WOTC for employees who are rehired. In general, taxable employers may carry the current year’s unused WOTC back one year and then forward 20 years.
An employer may claim the WOTC for an individual who is certified as a member of any of the following targeted groups:
- the formerly incarcerated or those previously convicted of a felony;
- recipients of state assistance under part A of title IV of the Social Security Act (SSA);
- veterans;
- residents in areas designated as empowerment zones or rural renewal counties;
- individuals referred to an employer following completion of a rehabilitation plan or program;
- individuals whose families are recipients of supplemental nutrition assistance under the Food and Nutrition Act of 2008;
- recipients of supplemental security income benefits under title XVI of the SSA;
- individuals whose families are recipients of state assistance under part A of title IV of the SSA; and
- individuals experiencing long-term unemployment.
Obtaining the credit is time sensitive, thus employer’s must meet submit Form 8850 no later than 28 days after the date the job applicant started the job. You cannot wait until end of quarter or end of year payroll reports due dates.
For more information, us the following link to the IRS website:
https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit
Please let us know if you need assistance with determining eligibility for this credit.
