X
X

Find Your Specialist

X

Contact Us

    Go Back

    Work Opportunity Credit Helps Offset Business Wages

    With the tight job market, businesses are looking for new strategies to find and retain essential workers. The federal work opportunity tax credit (WOTC) can help businesses offset wages to allow employers to offer more competitive salaries and to tap into a pool of workers that may be unemployed and currently available.    

    Credit Basics 

    The credit ranges between $2,400 and $9,600 for each eligible employee depending on whether they are veterans, disabled, or family assistance recipients. The credit is equal to 40% of up to $6,000 of wages paid to an individual who: 

    • is in their first year of employment;
    • is certified as being a member of a targeted group; and
    • performs at least 400 hours of services for that employer.

    The maximum tax credit is $2,400, with some exceptions. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be taken into account in determining the WOTC for qualified veterans, giving the employer a potential $9,600 credit. Note that an employer cannot claim the credit for employees who are rehired. 

    The WOTC is part of the general business credit and can be used to offset business income. Unused credits can be carried back two years and forward 20 years. Tax-exempt organizations can apply the credit against payroll taxes for hiring qualified veterans.  

    While employers cannot use the same wages to claim other federal wage-based credits, such as the family and medical leave credit or the empowerment zone credit, employers are able to use additional wages paid to employees not covered by other credits to qualify for the WOTC.  

    Eligible Workers 

    The WOTC is given for hiring workers in ten targeted groups that have been identified as being unemployed long-term or have faced significant barriers to employment. The 10 groups include: 

    • Temporary Assistance for Needy Families (TANF) recipients 
    • Unemployed veterans, including disabled veterans
    • Formerly incarcerated individuals and convicted felons
    • Designated community residents living in Empowerment Zones or Rural Renewal Counties 
    • Vocational rehabilitation referrals
    • Summer youth employees living in Empowerment Zones
    • Supplemental Nutrition Assistance Program (SNAP) recipients
    • Supplemental Security Income (SSI) recipients
    • Long-term family assistance recipients 
    • Long-term unemployment recipients, defined as those being unemployed for 27 or more consecutive weeks who received unemployment compensation during that time. 

    State Certification Needed 

    Employers must get state-certified before they can take the WOTC. Their state agency must certify potential hires as a member of a targeted group. To get certification, employers must submit IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency within 28 days after the eligible worker starts the job. The form is not submitted to the IRS.  

    How to Claim the Credit 

    The WOTC is taken on the employer’s federal income tax return and is figured on Form 5884, Work Opportunity Credit. The credit then is claimed on Form 3800, General Business Credit. The credit is time-limited and only is available for wages paid to targeted individuals who begin work on or before December 31, 2025. 

    With this beneficial offset, employers should consider seeking out available workers who would qualify for the credit and who have a demonstrated need for employment.  

     

    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled