Tax Credit for Employers: What is WOTC?

What is WOTC?

WOTC, or the Work Opportunity Tax Credit, is a federal tax credit. It’s available to employers in the healthcare field and in other industries who hire and retain veterans and other people who face significant barriers to employment. Employers claim about a billion dollars in tax credits every year under the WOTC program. There is no limit to how many people an employer can hire to qualify to claim the tax credit, and there are a few simple steps to follow to apply for WOTC.

How Does WOTC Work?

The tax credit that employers can claim depends upon the target group of the person hired, the wages paid to that person in their first year with the company, and the number of hours worked. There is also a maximum tax credit that can be earned.

For the long-term Temporary Assistance for Needy Families (TANF) target group only, the credit is available to employers who hire members of this group for up to a two-year period.

TANF Target Group:

The employer can claim a tax credit equal to 40% of the first-year wages, up to the maximum tax credit, if the employee works at least 400 hours.

The tax credit grows to 50% of the second-year wages, up to the maximum tax credit. Again, the employee must have worked at least 400 hours.

For all other target groups, the credit is available to employers who hire members of these groups, based on the employee’s hours worked and wages earned in the first year of employment.

Other Target Groups:

If the employee works at least 120 hours, the employer can claim a tax credit that’s 25% of first year wages, up to the maximum tax credit.

The tax credit goes up to 40% of first year wages (up to the maximum tax credit) if the employee works at least 400 hours.

Who can I Hire?

  • Veterans
  • TANF recipients
  • SNAP (Food Stamp) recipients
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational rehabilitation referral
  • Ex-felons
  • Supplemental Security Income Recipients
  • Summer Youth Employee (living in Empowerment Zones)

How do I Apply for WOTC?

In order to apply, you need to fill out IRS form 8850. Application instructions are also available to help guide you through the process.

Jamie Dixon is a member of the Gilmore Jasion Mahler Healthcare Specialist Team, with an expertise in long-term care, home health care and hospice. A member of the Ohio Council for Home Care and Hospice, he has been a member of the Financial Issues Committee for close to 20 years. 

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