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What is the work opportunity tax credit?
The federal credit is available to employers who support Americans who have been repeatedly blocked from employment.
The Work Opportunity Tax Credit (WOTC) is a federal tax credit for small businesses. It is a way for these businesses to hire people who have historically been denied work while also receiving support from the government to do so.
The plan is in place until the end of 2025, and there is scope to claim the credit for people who have worked in the past.
So what is the Work Opportunity Tax Credit?
According to the Department of Labor website, the WOTC is "a federal tax credit available to employers who invest in American jobseekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group."
These targeted groups are:
- Qualified IV-A Recipient,
- Qualified Veteran,
- Ex-Felon,
- Designated Community Resident (DCR),
- Vocational Rehabilitation Referral,
- Summer Youth Employee,
- Supplemental Nutrition Assistance Program (SNAP) Recipient,
- Supplemental Security Income (SSI) Recipient,
- Long-Term Family Assistance Recipient,
- Qualified Long-Term Unemployment Recipient.
Full details for eligibility in these groups can be found on the irs.gov website.
How to receive the credit
Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit. After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes.
After the required certification is secured, taxable employers claim the tax credit as a general business credit on Form 3800 against their income tax by filing the following:
- Form 5884 (with instructions),
- Form 3800 (with instructions),
- Your business’s related income tax return and instructions (i.e., Forms 1040 or 1040-SR, 1041, 1120, etc.).
Employers will then be eligible to claim the money back, as well as providing employment for those who need it the most.