Are you a business owner or manager looking to expand your team? Understanding the intricacies of a valuable tax credit could significantly impact your hiring decisions. The Work Opportunity Tax Credit (WOTC) presents an opportunity for businesses to save up to $2,400 (with variations for certain employees) per eligible hire, provided they meet specific criteria. The credit is limited to eligible employees who begin work for an employer before January 1, 2026
Generally, an employer is eligible for the credit only for qualified wages paid to members of a targeted group. These groups are:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
- Qualified veterans
- Qualified ex-felons
- Designated community residents
- Vocational rehabilitation referrals
- Qualified summer youth employees
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP)
- Qualified Supplemental Security Income recipients
- Long-term family assistance recipients
- Long-term unemployed individuals
To claim the credit, employers must obtain certification for each eligible hire by submitting Form 8850, Pre-Screening Notice and Certification Request to their state agency within 28 days of employment commencement.
However, securing the WOTC requires meeting certain requirements. Employees must fulfill a specified number of service hours, and the credit isn't available for relatives or former employees of the hiring company. Different rules apply to various categories of employees, with varying credit amounts—ranging from $2,400 to $9,600—depending on the group and duration of employment.
An eligible employer will claim the WOTC on its federal income tax return. The Credit value is limited to the business’s income tax liability.
While claiming the WOTC offers potential tax savings, it's crucial to navigate additional rules and requirements. Employers may choose not to claim the credit, and in some cases, its application may be restricted or necessitate allocation. Nevertheless, for most businesses, especially those hiring from targeted groups, leveraging the WOTC can yield significant returns.
As you consider your hiring strategies, explore how the Work Opportunity Tax Credit could be a valuable asset to your business. Reach out to us for further guidance or clarification tailored to your specific circumstances.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
