Workers Opportunity Tax Credit (WOTC)
Save up to $9,600 for every qualified employee you hire.
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What is WOTC?
Local, State, and Federal tax incentive programs allow employers to reduce taxable liability of private-for-profit employers for the hiring of qualified individuals. The average benefit per employee is $2,400.00 and can be as much as $9600.00.
WOTC is a Federal tax credit created by the Small Business Job Protection Act of 1996 and the Welfare-to-Work Tax Credit of 1996. This credit is available to employers who hire and retain from target groups. Employers claim about $1 billion in tax credits each year under the WOTC program. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are a few simple steps to follow to apply for WOTC.
Is WOTC the Only Program We Review?
WOTC is a great program to start out with. But clients will benefit from looking at all Employer Based Tax Incentives. The most notable two programs in addition to WOTC are Section 41 R&D Tax Credit, and the Startup Tax Credits.
What Types of Employees Qualify?
From the 1940's through the 1990's:
Although many of these programs started out as programs specifically designed for Veterans, they were expanded in the 80's and 90's to include broader groups such as TANF Recipients, SNAP (Food Stamp) Recipients, Residents living in Empowerment Zones or Rural Renewal Counties), Employees receiving certain types of vocation training, Ex-Felons, Supplemental Security Income Recipients, Summer Youth Employees, and Seasonal Workers.
Into the 2000's....
The Financial Meltdown in the mid 2000's brought about a renewed focus on Job Creation. With this we saw massive expansion of Federal Tax Incentives for creating, and maintaining jobs. This was done through the Small Business Jobs Act, The American Recovery and Reinvestment Act, Numerous Job Creation and Protection Acts, and most notable the PATH Act signed by President Obama for effective changes in 2016 through 2022.
The pattern in the last decade is that with the passing of each Act, more and more companies are eligible for Employee based Tax Incentives that broaden not only WOTC itself, but hundreds of programs that surround it.
Virtually any business can now benefit from Employer Based Tax Incentives because even candidates that don't qualify for WOTC often qualify for other tax incentives.
Regardless of Any Individual Candidate or Employee
Virtually All Employers in These Industries Qualify for Employer Based Tax Incentives:
Producers of Products
Architectural / Engineering / Design Groups
Companies Performing Technical Functions
How are the Tax Credits Calculated?
Employers for WOTC candidates generally can earn a tax credit equal to 25% or 40% of a new employee's first-year wages, up to the maximum for the target group to which the employee belongs. Employers will earn 25% if the employee works at least 120 hours and 100% if the employee works at least 400 hours. The average benefit per employee is $2,400.00.
How is the WOTC Tax Credit Claimed?
WOTC is a general business credit and can offset federal income taxes and can be carried back to the prior year or carried forward 20 years.
After an employee has been qualified and the certification secured, a taxable employer may claim the tax credit as a general business credit against their income tax using IRS form 3800.
Sole Proprietorship, S-Corp, LLC, LLP or Partnership
The credit passes to the owner, shareholder, member or partner in the same manner as losses are allocated.
The credits are used by the corporation.
Employers who are qualified as tax exempt as described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may only claim the WOTC for qualified veterans and may not claim for other target groups.
After an employee has been qualified and the certification secured, tax exempt employers may claim the credit against the employer social security tax using IRS Form 5884-C. Form 5884-C 'Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans' is filed after filing the related employment tax return for the employment tax period for which the credit is being claimed.
But doesn't my CPA or Payroll Company take care of this for me?
That's a great question! We differ from payroll companies in many ways. We give the client the ability to view candidates as part of the on-boarding process and most payroll companies only allow clients to view the employees after being hired.
Many companies think their payroll company is already taking care of this for them. From our experience, the vast majority of companies are either not taking these types of tax incentives at all, or they are taking only small fractions of what is available.
If a client is not completing a form 8850 with each and every new candidate they consider for employment, they are not taking advantage of this Tax Credit. This process is more operational then it is payroll based. Because most payroll companies are not involved in the client's interviewing and candidate process, it is rare that this is being taken advantage of.
Our system is electronically based which means that the clients do not need to obtain paper documents from candidates for the survey. This aids in ease of use as well as ensuring confidentiality for the candidates. The candidate then will answer more honestly as they are submitting fully confidential via the electronic survey.
Further, we put control in the hands of the client, something other WOTC providers do not do. We offer the client to fully control candidates surveyed, employees hired, etc.
While we do not know other companies specific fee structure. We do know that other companies who provide WOTC services often have back-end fees, per employee filing fees, and fees to actually submit to the State. These are all built upon what they are already charging for their WOTC service. Whereas we have one set fee to utilize our Client Portal and one set fee on the credit itself.
Can I claim WOTC or Hiring Tax Incentives on Existing Employees?
Yes in most cases you can take variations of these tax incentives for your existing employees.
The Workers Opportunity Tax Credit itself may only be taken on new employees that are pre qualified for WOTC before they begin employment. Our system works to help ensure compliance and promoting the screening process prior to this step so that you receive every possible credit you are entitled to.
Our system automatically identifies which programs are available for you current employees. These credits often match or even exceed the amount of tax credits that can be found under the WOTC program. These include certain geographic based incentives, retroactive credits, Empowerment Zone, Indian Employer Tax Credit, TICA Tip Tax Credit, R&D Tax Credit, Employment Credits from IRC Section 41, and Startup Tax Credits.