The Work Opportunity Tax Credit (WOTC) is a valuable tax break for businesses that hire workers from certain targeted groups. Although it has been available in some form for many years, it tends to be overlooked. Currently, the WOTC is available only for businesses that hire employees that begin work before Jan. 1, 2014. Although it may be extended, taking advantage of it now will ensure that your business benefits no matter what Congress decides.
Simply stated, the WOTC provides a tax credit to employers who hire members of certain targeted groups. The credit is worth 40 percent of first-year wages up to a maximum amount. Depending on the classification of the employee, the maximum credit can range from $2,400 to $9,600. The greatest tax benefits are provided to employers who hire long-term, family-assistance recipients, or veterans with a service-connected disability who have aggregate periods of unemployment of six months or more in the 12-month period ending on the date of hire.
Legislation passed in 2011 expanded the WOTC to include liberalized rules for a number of other groups of qualifying veterans, including those who are a member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP or food stamps) for at least three months in the 15 months prior to hiring, those unemployed for aggregate periods totaling at least four weeks in the 12 months prior to hiring, and those with a service-connected disability hired not more than one year after being discharged or released from active duty.
Other targeted groups include qualified recipients of temporary assistance to needy families, qualified ex-felons hired no later than one year after conviction or release from prison, designated community residents age 18 through 39, vocational rehabilitation referrals, qualified SNAP recipients age 18 through 39, and qualified Supplemental Security Income (SSI) recipients. There is also a more limited credit for designated summer youth employees age 16-17.
To be eligible for the WOTC, a new employee must be certified as a member of a targeted group by a State Employment Security Agency (SESA). You must receive the certification by the day the employee begins work or complete a pre-screening notice and certification request on or before the day you offer the individual a job and submit it to the SESA within 28 days after the employee begins work. Since the process is somewhat involved, you should start early to have your employees certified before year-end.
Tax-exempt organizations can also claim a payroll-tax credit, subject to certain limits, for hiring qualifying veterans. If you are considering hiring WOTC-eligible individuals, you should consult your tax adviser for the specific benefits available to you and the process you should follow to ensure that you receive the maximum benefit.
Eileen C. Semmler, CPA is a tax partner in the Small Business Advisory Group of The Bonodio Group.