How can a business benefit from the Work Opportunity Tax Credit (WOTC)?

6/14/2021

Small Business Tax Credit

You can claim the potentially lucrative federal Work Opportunity Tax Credit (WOTC) for some of the wages paid to the individual who is part of a targeted group.

Here’s what you need to know to make the WOTC a tax saver for your business

WOTC Basics
The credit generally equals 40 percent of qualified first-year wages paid to an eligible employee, up to a maximum wage amount of $6,000.
The maximum credit is $2,400 (40 percent x $6,000).

The credit is reduced to 25 percent of qualified first-year wages for an employee who completes at least 120 but fewer than 400 hours of service.
In this situation the maximum credit is $1,500 (25 percent x $6,000).

You can claim the WOTC only if you hire a member of a targeted group. Targeted groups include the following:

Qualified IV-A recipients
Qualified veterans
Qualified ex-felons
Designated community residents
Vocational rehabilitation referrals
Qualified summer youth employees
Qualified supplemental nutrition assistance benefits recipients
Qualified SSI recipients (anyone who is certified by the designated local agency as receiving Supplemental Security Income benefits under Title XVI of the Social Security Act for any month ending within the 60-day period ending on the hiring date)
Long-term family assistance recipients
Qualified long-term unemployment recipients

This link contains links to the names, addresses, phone and fax numbers, and email addresses of the WOTC coordinators for each of the SWAs.

Exceptions to the General Rule on Credits

There’s a higher limit of $12,000 for first-year wages paid to a qualified veteran who is entitled to compensation for a service-connected disability and was discharged or released from the military within the past year.

The maximum credit is $4,800 (40 percent x $12,000).

There’s an even higher limit of $14,000 for first-year wages paid to a qualified veteran who was unemployed for at least six months in the prior year.

The maximum credit is $5,600 (40 percent x $14,000).

If a qualified veteran both has a service-connected disability and was unemployed for at least six months in the prior year, the limit for first-year wages is $24,000.

The maximum credit is $9,600 (40 percent x $24,000).

The WOTC for a long-term family assistance recipient equals 40 percent of qualified first-year wages, up to a maximum wage amount of $10,000.

The maximum credit is $4,000 (40 percent x $10,000).

In addition, for long-term family assistance recipients, the WOTC can be claimed for 50 percent of qualified second-year wages, up to a maximum wage amount of $10,000.

The maximum second-year credit is $5,000 (50 percent x $10,000) and a maximum combined credit for the two years of $9,000 ($4,000 + $5,000).

The WOTC for a qualified summer youth employee (a 16-year-old or 17-year-old who lives in an empowerment zone) equals 40 percent of first-year wages paid during any 90-day period between May 1 and September 15, up to a maximum wage amount of $3,000.