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Putting the Work Opportunity Tax Credit to Work for You

For many employers, the struggle to find skilled workers — and in some cases any workers at all — is real. While this has been a long-standing problem for several industries, it has been exacerbated by the pandemic because many of those who lost jobs in 2020 haven’t returned to work or have moved on to other vocations.

One way companies can widen their hiring pools while potentially qualifying for a valuable tax break, is to complete the eligibility requirements for the Work Opportunity Tax Credit (WOTC).

The WOTC is designed to incentivize employers to hire employees who historically have faced challenges in finding employment. Generally, an employer is eligible for the credit only for qualified wages paid to members of one or more of 10 targeted groups:

  1. qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
  2. qualified veterans,
  3. qualified ex-felons,
  4. designated community residents,
  5. vocational rehabilitation referrals,
  6. qualified summer youth employees,
  7. qualified members of families in the Supplemental Nutrition Assistance Program (SNAP),
  8. qualified Supplemental Security Income (SSI) recipients,
  9. long-term family assistance recipients, and
  10. qualified long-term unemployed individuals.

There are several requirements to qualify for the credit. For instance, each employee must have completed a minimum of 120 hours of service for the employer. Also, the credit isn’t available for employees who are related to the employer or who previously worked for the employer.

The rules and credit amounts differ for specific employees. The maximum credit available for the first year’s wages is $2,400 for each employee or $4,000 for a recipient of long-term family assistance. In addition, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000 ($4,000 for year one and $5,000 for year two).

For some veterans, the limits are $4,800, $5,600 or $9,600.  For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth workers is $1,200 per employee.

Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and in some U.S. territories.

Additional rules and requirements exist. In some cases, employers may elect not to claim the WOTC. And, in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers that hire from targeted groups, the credit can be valuable.

Explore the Option

Many companies are need employees — preferably skilled, though you may be able to train or “upskill” a worker with the right programs in place. The WOTC represents an opportunity to widen your hiring pool while taking advantage of a valuable tax break. Contact us at 315-472-9127 or with questions or for more information about your situation.