Don’t leave valuable tax benefits on the table for your company.
You’re running a complex business, with many layers of operations, services, and priorities.
As you’re hiring the right people to make your business shine, it can be worthwhile to make sure you’re receiving all applicable benefits. One such opportunity is the Work Opportunity Tax Credit, or WOTC (“wah-tzee”), which can enable you to claim a tax break when you hire folks from certain eligible groups.
What is WOTC?
This federal tax credit program is available to employers who hire individuals with significant barriers to employment, such as:
- Participants in the Supplemental Nutrition Assistance Program (SNAP/food stamps)
- Vocational rehabilitation referrals
- Long-term or short-term temporary assistance for needy families recipients
- Designated community residents
- Supplemental security income recipients
- Summer youth employees (if in an Empowerment Zone)
Some groups are not eligible to qualify your business for the tax credit, such as former employees, which means you can’t let someone go and rehire them to claim the credit. Majority owners of the business and relatives or dependents of the company owners are also not eligible for the WOTC tax credit program.
This nonrefundable credit is available for private-sector companies, as well as some nonprofits if they are hiring from certain sections of veterans.
Benefits of WOTC
Using this program can have many positive effects for you and your business, not all of them fiscal.
You can claim a tax credit for as high as $9,600, depending on weeks worked and annual wages. We’ll walk you through the formula for tax break amounts below.
This benefits not only your business directly, but also the economy as a whole, as higher employment levels among the population contribute to a stable economy. Those being hired also receive value in improving their own economic circumstances and personal value and self-worth from having a good job.
Overall, if you install the right processes for your recruiting and employment onboarding, you can help bring some good things to your business, your region’s economy, and to individual employees.
Calculating the WOTC Tax Credit
After an employee has worked for your company for 120 hours (which is three weeks of full-time pay, but part-time employees are also eligible), you may then claim a tax credit of up to 25 percent of the new employee’s first year of qualified wages, with the maximum of $6,000.
After an employee has worked for your company for 10 weeks, or 400 hours, you can claim a tax credit equal to 40 percent of the new hire’s first year of wages, with a cap of between $1,200 and $9,600, depending on the eligible group the employee fits into.
By just using a few forms and processes, you could see a significant reward.
Applying for the WOTC
As an employer, you must request certification from your state workforce agency to confirm officially that the possible new hire is a member of at least one of the target groups for the WOTC program. In our region the state workforce agency is the Pennsylvania Department of Labor and Industry.
Two forms must be completed as part of the WOTC application, which means you’ll need to add a few more forms to the paperwork for all new hires if you’re looking to apply for the WOTC tax credit. It’s important to know that each form must be completed by every job applicant, whether they might qualify for the credit or not, rather than for only certain applicants (to avoid discrimination).
Every applicant will need to complete IRS Form 8850, even if you’re sure they don’t qualify for one of the WOTC target groups. ETA Form 9061 will also need completed. This can be completed by the employer or the job applicant.
And now, the next important key: submitting all the forms to the Pennsylvania Department of Labor and Industry within 28 days of the new employee’s start date. If you miss this window, you cannot re-apply for the tax credit or circle back to it later.
After you’ve submitted the paperwork, the state workforce agency will send your company a final determination letter, outlining if you qualified for the credit. Then, when filing your annual tax returns for your business, you can claim the tax credit based on the longevity and salary level of your employee(s).
After you’ve completed the process, be sure to retain copies of all forms, any transmittal letters from the Pennsylvania Department of Labor and Industry, and certifications you receive from the department for three years from the date of the submitted tax return.
Finding the Candidates
In Pennsylvania, the Department of Labor and Industry can help connect you with workers who are part of the WOTC’s targeted groups. Greg Shirk, in the Bureau of Workforce Development, is a key contact for this program. You can touch base with him at 717-783-3676.
Certain websites can also provide resources to post jobs and find candidates, such as the local Veterans Employment Center and HelpforFelons.org.
As a part of WOTC, about $1 billion in tax credits are claimed each year in the U.S., according to the department of labor. You and your company can be a part of improving the lives of others while helping your own business and the local economy thrive.
Work Opportunity Tax Credit advising is just one way the experts at Gift CPAs help our clients to streamline their finances and make sure they’re maximizing every opportunity. To talk with an accounting guide, visit our Schedule an Appointment page today!