Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit is a federal hiring incentive that provides a tax credit of up to $9,000 if your company is hiring from any one of the following groups:
- A member of a family that is a Qualified Food Stamp Recipient
- A member of a family that is a Qualified Aid to Families with Dependent Children (AFDC) Recipient
- Qualified Veterans
- Qualified Ex-Felons, Pardoned, Paroled or Work Release Individuals
- Vocational Rehabilitation Referrals
- Qualified Summer Youths
- Qualified Supplemental Security Income (SSI) Recipients
- Qualified Individuals living within an Empowerment Zone, Renewal Community, Enterprise Community or Rural Renewal Community
- Long Term Family Assistance Recipient (TANF) - formerly known as Welfare to Work
- Qualified Unemployed Veterans (new in 2009)
- Qualified Disconnected Youth (New in 2009)
1) Does my employee have to work a certain number of hours for my business to qualify?
Yes. If you hire an employee in one of the first eight target groups, that employee must work at least 120 hours within one year for your business to qualify for a 25% tax credit. If they work more than 400 hours, your business can qualify for a 40% tax credit.
If you hire an employee in the ninth target group (long term Temporary Aid to Needy Families recipient), you could claim a 40 percent tax credit on the first $10,000 you pay that person during their first year of employment, and a 50 percent tax credit on the first $10,000 you pay them in the second year.
2) Can my business file more than one WOTC per year?
Yes. If your business were to hire ten people who meet the criteria for one of the WOTC target groups, and all ten work at least 120 hours during their first year, your business could claim ten separate tax credits for the year.
If the tax credit for each employee was $2,400, your business could save $24,000 in federal income taxes.
3) What if my business hires an employee who meets the criteria for more than one target group?
You can only claim one WOTC per qualifying employee, even if the employee fits into several target groups.
If you have an employee who meets the criteria for target group 9 and one of the other eight target groups, you must choose which tax credit to take.
4) Can my business claim a Work Opportunity Tax Credit (WOTC) year after year for the same employee?
No. For the first eight target groups, your business can claim a tax credit for the year of employment. For target group 9 (long-term TANF recipients), you can claim a tax credit for the first two years of employment.
5) How does my business apply for the Work Opportunity Tax Credit (WOTC)?
Once you’ve determined that you have an eligible employee, you need to complete the necessary forms and submit them to the Employment Development Department’s WOTC Center.
6) When should my business submit the forms to apply for a WOTC?
Your WOTC application forms must be postmarked within 28 days of the qualifying employee’s first day of work.
7) Can my business qualify for a WOTC if I hire a relative who fits into one of the target groups?
No. Certain employees will not qualify your business for a WOTC, even if they fit into one of the nine target groups. This includes relatives, dependents, and any employee you rehire.
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