Employers and small businesses are always looking for ways to lower their tax burdens. Yet many businesses that employ workers may qualify for the Work Opportunity Tax Credit (WOTC) without even realizing it. For those companies that plan to hire employees this year, knowing about this tax credit may change whom they hire.

 

What is the WOTC?

The WOTC is a federal tax credit for companies to incentivize them to hire workers from specific groups who may have a difficult time finding employment. An explanation of each group is listed below.

 

Who qualifies for the WOTC?

A number of target groups are listed under the WOTC. If businesses hire these workers under the specified guidelines, the companies can claim the WOTC on their federal tax return. Here are the WOTC target groups:

 

Veterans

Qualifications:

  • Served at least 180 days of active duty in the U.S. Armed Forces (not including training)
  • Not served more than 90 days of active duty within 60 days of hiring

 

The veteran must also meet one of the following qualifications:

  • Unemployed at least 4 weeks but less than 6 months in the 1-year period ending on the hiring date
  • Unemployed at least 6 months in the calendar year in the 1-year period ending on the hiring date
  • Qualifies for compensation for a service-sustained disability and hired within one year of release from active duty or discharge
  • Qualifies for compensation for a service-sustained disability and unemployed for at least six months within the calendar year he or she is rehired
  • Member of family that qualifies for food stamps for at least 3 months during the first year of employment

 

Qualifies for Short- or Long-Term Temporary Assistance for Needy Families (TANF)

Qualifications:

  • Received TANF for 9 months (do not need to be consecutive) of the last 18 months before hiring (Short-term)
  • Received TANF for 18 consecutive months before hiring date (Long-term)
  • Ceased being eligible for TANF due to federal limitations and is hired within two years (Long-term)

 

Food Stamp Recipient (Supplemental Nutrition Assistance Program — SNAP)

Qualifications:

  • Is between the ages of 18 and 39 years old on the hiring date
  • Is a member of a family that received SNAP benefits for the six months before hiring OR for at least three of the last five months before hiring

 

Designated Community Resident

Qualifications:

  • Is between the ages of 18 and 39 years old on the hiring date
  • Lives in a designated Renewal Community, Enterprise Community, or Empowerment Zone
  • Continues residing at location after being hired

 

Vocational Rehabilitation Recipient

Qualifications:

  • Has a disability and has completed or will complete rehabilitation from a state-certified agency, the U.S. Department of Veteran Affairs, or an Employment Network as part of the Ticket to Work Program

 

Ex-Felon

Qualifications:

  • Has been convicted of a felony
  • Is hired within one year of being convicted or released from prison

 

Supplemental Security Income (SSI) Recipient

Qualifications:

  • Received supplemental security income benefits during any month within 60 days of the hiring date

 

Summer Youth Employee

Qualifications:

  • Is 16 or 17 years old when hired
  • Works between May 1 and September 15
  • Lives in an Enterprise Community, Empowerment Zone or Renewal Community

 

Qualified Long-Term Unemployment Recipient

Qualifications:

  • Unemployed for at least 27 straight weeks up to the hiring date
  • Received unemployment payments for at least some of the unemployment period

 

Who does not qualify for the WOTC?

There are a number of individuals who do not qualify for the WOTC target groups, even if they meet all other criteria:

  • Relatives of the employer, including immediate and extended family and in-laws
  • Former employees, except summer youth
  • Majority owners in the business

 

How Much is the Work Opportunity Tax Credit?

The amount of the Work Opportunity Tax Credit varies according to which target group the employee belongs to, but it applies to 25 to 50 percent of the new employee's wages during the first year of employment. The WOTC is limited to the amount of the business income tax or social security tax that is owed.

 

 

Additional information about the WOTC and eligible target groups can be found at the Department of Labor and IRS websites.

 

 

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