Putting the Work Opportunity Tax Credit to Work for You
The Work Opportunity Tax Credit (WOTC) is a Federal income tax credit available to all employers who hire individuals from certain targeted groups, who historically have faced challenges in finding employment. This tax credit has been around for years but is only authorized for one or two years at a time, though it has been in effect for the past several years continuously.
The tax credit is equal to 25 percent of the qualified employee’s first and second years of wages if the employee works at least 120 hours in that year. It grows to 40 percent if the employee works more than 400 hours in that year but is limited to total wages in varying amounts depending on the target group, which would then generate a credit to the employer.
December 20, 2019, President Trump signed into law an end-of-year spending bill which extends the WOTC through the end of 2020.
There are many different target groups, and we have found that most small to medium sized employers either are unaware of this tax credit entirely or unaware of a large number of targeted groups. Even worse, here in New York you have only 30 days after hiring a new employee to identify them as a member of a group and get them certified – which entitles you to significant tax credits, but if you miss the window, those credits are gone.
There are three main groups that the credit targets, as follows:
- Formerly Incarcerated – a person hired within a year of released from prison for a felony charge.
- Public Assistance Unemployment Recipient – a person who receives government sponsored unemployment relief benefits through TANF, SNAP, SSI, and Long-term Unemployment.
- Veteran– a veteran who meets certain conditions, ex: unemployed for a period totaling at least 6 months in the 1-year period ending on the hiring date.
Other classifications include SNAP recipients, long-term unemployed persons and summer youth employees.
We have worked with our clients to set-up procedures which identify potential available credits immediately upon engaging a new hire. These procedures allow company personnel to ascertain correctly the inclusion of the new hire into the proper classification and have the required tax forms and paperwork filed timely with the state, and the Department of Labor, ensuring the maximum allowable credits. Too often we have seen employers missing these benefits. In today’s tight labor market, we are seeing more of the targeted groups joining the workforce and the tax credits generated are substantial – what’s your excuse for not getting them?
As the health crisis becomes an economic one, government agencies at the national and local level are taking actions to provide assistance and stimulate economic growth. We are anticipating that there will be additional incentives offered to businesses and individuals once the COVID-19 pandemic is declared over. As always, once these new programs become available, we will be able to provide you with the information you need to ensure you maximize all the tax incentives available to you.
If you would like more information regarding the WOTC, please do not hesitate to contact our office.