The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals from certain target groups facing significant barriers to employment. This initiative encourages workforce diversity and helps various demographics secure jobs, while providing financial incentives to businesses.
Understanding WOTC Target Groups
The WOTC program identifies specific categories of individuals whose employment can qualify an employer for the credit. These groups are generally recognized as having difficulties securing and retaining employment. Hiring individuals from these target groups can help employers reduce their federal tax liability.
Here are the primary target groups under the WOTC program:
| Target Group | Description/Criteria |
|---|---|
| Qualified Ex-Felons | An individual who has been convicted of a felony under any federal or state law and is hired by an employer not more than one year after their conviction or release from prison for that felony. This group aims to support the reintegration of justice-involved individuals into the workforce. |
| Qualified TANF Recipients | Individuals who are members of a family receiving Temporary Assistance for Needy Families (TANF) benefits for at least 9 months during the 18-month period ending on the hiring date. |
| Qualified Veterans | This category includes various types of veterans, such as those receiving food stamps, unemployed for at least 4 weeks, or with service-connected disabilities. |
| Qualified Food Stamp (SNAP) Recipients | Individuals aged 18 to 39 who are members of a family receiving Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) for a specified period. |
| Designated Community Residents | Individuals aged 18 to 39 who reside within an Empowerment Zone or a Rural Renewal County. |
| Vocational Rehabilitation Referrals | Individuals with physical or mental disabilities who have completed or are undergoing rehabilitation services from a state-certified agency. |
| Supplemental Security Income (SSI) Recipients | Individuals who receive SSI benefits for any month ending during the 60-day period ending on the hiring date. |
| Long-Term Unemployment Recipients | Individuals who have been unemployed for 27 or more consecutive weeks and have received unemployment compensation during some portion of the unemployment period. |
| Qualified Summer Youth Employees | Individuals aged 16 or 17 who reside in an Empowerment Zone and are hired for an employer's summer job. |
Benefits for Employers
For businesses, the WOTC serves as a valuable incentive to diversify their workforce. By hiring eligible individuals, employers can claim a tax credit ranging from \$1,200 to \$9,600 per employee, depending on the target group and the employee's wages in the first year of employment. This credit directly reduces the amount of federal income tax an employer owes, thereby lowering their overall tax burden.
Claiming the Credit
To claim the Work Opportunity Tax Credit, employers must first obtain certification from their State Workforce Agency (SWA) confirming that the hired individual is, in fact, a member of one of the WOTC target groups. This certification process typically involves submitting specific forms within 28 days of the eligible individual's start date. Once certified, employers can then claim the credit on their federal income tax return.
For more detailed information and the latest guidelines, employers can consult official resources from the Internal Revenue Service (IRS) and the Department of Labor.
