6 Tips to increase your company's Work Opportunity Tax Credit eligibility
As a business owner, you're always looking for ways to maximize your tax savings and increase your bottom line. One often-overlooked tax credit that can help you do that is the Work Opportunity Tax Credit (WOTC). This credit is designed to encourage employers to hire individuals from certain protected groups who have consistently faced significant barriers to employment. There are things you can do to improve your eligibility and chances of claiming the WOTC — but first, what exactly is the Work Opportunity Tax Credit?
What is the WOTC?
The Work Opportunity Tax Credit, or WOTC, is a business incentive offered by the federal government for companies to hire individuals within specific target groups who traditionally find it more challenging to find and maintain a job. This credit can provide significant financial benefits for companies, such as tax credits of up to $9,600 depending on target group and time worked, not to mention open career pathways previously unavailable to these individuals — but it's not an easy process. The application is tedious, layered in complexities, and can take time that busy owners and managers just don't have.
We offer tips and resources to help businesses navigate the WOTC claims process to take advantage of this valuable tax credit. Contact us to see how we can help your business.
Who is Eligible for the WOTC?
To be eligible for the Work Opportunity Tax Credit (WOTC), an individual must be a member of a target group that traditionally has more trouble than the general population in maintaining gainful employment. These groups include:
- TANF recipients
- Vocational rehabilitation referrals
- Summer youth employees
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Long-term family assistance recipients
- Individuals receiving SSI benefits
- Designated community residents
- Long-term unemployment recipients
For an employee to qualify, they must have begun work for your company after December 31, 2020. Currently, the WOTC is extended through 2025. You must also obtain certification from your state's labor agency verifying that the individual is a member of one of the above target groups before you can claim the credit.
What are the eligibility requirements for employers?
To be eligible for WOTC your company must:
- Hire employees from targeted groups: Employees must belong to one of the target groups designated by the federal government.
- Meet the minimum hours requirement: Employees must work at least 120 hours annually, and the credit cannot be claimed until an employee has reached that 120-hour requirement. The credit can be claimed for up to 400 hours' worth of employment. Your business receives a credit based on the number of hours worked, so the more your employees work, the greater your credit, up to the maximum allowable credit dependent on the target group to which your employee(s) belong(s).
- File the appropriate forms: You must file the appropriate forms with the Internal Revenue Service (IRS) within 28 days of your employee's first day of work. Some forms, like certification, must be filed before the employee's first day.
What are the eligibility requirements for employees?
While employees are not able to claim any credits regarding the WOTC, they still must meet certain eligibility requirements for your business to be eligible for WOTC, including:
- Be a member of a target group: The individual must be a member of one of the target groups designated by the federal government.
- Meet the minimum age requirement: Employees must be at least 18 years old at the time of hire.
- Meet the minimum income requirement: The employee's overall income must be below a certain threshold, which is determined by the target group they belong to.
6 Tips to Improve Your Company's Eligibility
When you hire individuals from specific, underemployed target groups, you earn tax credits for your business, but you also can feel satisfied knowing that you're helping less economically fortunate individuals provide sustainable incomes for themselves and their families.
Six ways you can improve your eligibility include:
- Researching the target groups listed above. Each target group has specific requirements to qualify your business for WOTC. For instance, convicted felons are a WOTC target group — however, a requirement of the WOTC is that you must hire them within 12 months of their release from prison.
- Ensuring your hiring practices are inclusive and non-discriminatory. Individuals in some target groups may require accommodations for employment beginning at the application and interviewing stages.
- Streamlining your hiring process for efficiency, faster time-to-hire, and improved employee retention. The less time it takes for individuals to become full-fledged employees and get on the schedule, the faster you can begin documenting hours worked towards WOTC claims. Plus, all employees can benefit from a streamlined process overall.
- Making sure employees you plan to hire for WOTC purposes meet the qualifications required for the position. You'd be forgiven for assuming that hiring employees from these target groups means hiring unqualified or underqualifiedindividuals, but that is not the case. While this is not a WOTC stipulation, employees you hire to meet WOTC eligibility requirements should have the qualifications required of the position.
- Providing access to ongoing training and professional development opportunities. This provision ensures all employees remain current on up-to-date techniques in your industry as well as providing ways for employees to continue their education.
- Consulting with a tax professional to make sure you haven't missed anything. You can face steep fines for claiming credits for which your business is not entitled or otherwise incorrectly filing a tax return.
Partnering with veterans' organizations, job fairs targeting individuals receiving government assistance, and reaching out to organizations serving individuals with disabilities can help you find talented individuals who meet WOTC requirements, increase your WOTC eligibility, and gain access to valuable tax credits.
Although the program can be challenging to navigate, taking the time to learn about the requirements and opportunities associated with WOTC could help you reap sizable rewards and make a difference in your bottom line and the lives of people in your community. Partner with a tax professional or a WOTC service provider to ensure your company is maximizing its WOTC benefits and minimizing compliance risk.
Partner With Us
Our team of experts at Maximus can help you take advantage of the WOTC and other tax credits that can help you save money and grow your business. We provide a comprehensive WOTC service that includes screening, certification, and compliance support. Contact us today to learn more about how we can help you increase your company's WOTC eligibility and maximize your tax savings.