How much is the Work Opportunity tax credit?
The federal initiative provides businesses an incentive to hire workers who are likely to be denied jobs, such as veterans and convicts.
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."
The Work Opportunity Tax Credit is available to employers for hiring workers from groups who’ve consistently faced significant barriers to employment. If you’re hiring, the #IRS urges you to check out: https://t.co/mg0lrI4zWP pic.twitter.com/Z2t4RFUmGl— IRS Small Biz (@IRSsmallbiz) November 12, 2021
The credit amount for WOTC can be up to $9,600 for each qualified new hire, depending upon the new hires' WOTC target group. The credit is equal to a percentage of the eligible employee’s wages, and the employee must work at least 120 hours for the employer to receive credit. Veterans receive the highest amount, while other targeted groups receive less.
- Veterans with a service-connected disability who have been unemployed for at least 6 months in the past year, $9,600,
- Veterans with a service-connected disability and hired within 1 year of their discharge/release date, $4,800,
- Veterans who have been unemployed for at least 6 months, $5,600,
- Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits, $2,400,
- Veterans who have been unemployed for at least 4 weeks but less than 6 months, $2,400,
- Long-term unemployed, $2,400,
- SNAP recipients, $2,400,
- Temporary Assistance for Needy Families (TANF) recipients, $2,400,
- Long-Term Family Assistance recipients who are members of a family that has received TANF benefits for at least 18 consecutive months, $9,000,
- Supplemental Security Income recipients, $2,400,
- Vocational rehabilitation referrals, $2,400,
- Ex-felons, $2,400,
- Designated community residents, $2,400,
- Summer Youth program participants who are 16 to 17 years old, work between May 1 and September 15, and live in a designated community area, $1,200.
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.
There are many ways to honor veterans. On #VeteransDay2021, consider hiring a vet. It may even qualify your business for the Work Opportunity Tax Credit. https://t.co/tVKFvoXUEq pic.twitter.com/sTWxaYiyfS— IRSnews (@IRSnews) November 11, 2021
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.
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