Work Opportunity Tax Credit Encourages Hiring Certain Workers
Employers May Recoup Costs of Offering Hiring Incentives
As the nation slowly pulls out of the COVID-19 pandemic, employers looking to hire workers are finding the need to be more flexible about work arrangements and offer other incentives. The “Great Resignation” has intensified a labor shortage that was already making things difficult in many industries before the pandemic.
Though offering flexibility and other hiring incentives could result in additional expense, business owners may find they can recoup some of those costs through the Work Opportunity Tax Credit (WOTC).
Now is a good time to take a fresh look at this tax credit as many workers are returning to the workplace after having received some form of government assistance to help them through the pandemic. The WOTC rewards employers for hiring workers who have faced barriers to employment in the past – including those who have received certain forms of government assistance in the six months prior to being hired.
The WOTC allows business owners to recoup up to 25% of wages paid to eligible employees who worked between 120 and 400 hours during the first year of employment. The tax break rises to 40% for employees who worked more than 400 hours in the first year.
Originally enacted in 1996, the WOTC has been revised and reauthorized numerous times. Last year, it was extended through 2025. The five-year extension means business owners can continue to benefit from hiring workers who have traditionally faced barriers to employment, including:
- Veterans who are disabled, have received temporary government assistance or SNAP benefits, or have been unemployed for extended periods of time within the previous year,
- Recipients of temporary assistance such as SNAP benefits,
- Supplemental Security Income recipients,
- Workers who were released from incarceration within the past year,
- Workers who live in certain economically depressed regions,
- Workers under age 18 seeking summer employment in certain economically depressed regions, or
- Individuals who have been unemployed for at least six months and have received unemployment compensation during all or part of that time.
The goal of the WOTC is to put America to work and has made an impact. American companies claim more than $1 billion in WOTC credits annually, representing between $2.5 billion and $4 billion in wages paid to workers.
Eligibility for the WOTC only covers the first year of a qualified worker’s employment and it is important to understand the WOTC is a tax break that accrues to the employer, not the employee, even though it is the employee who must qualify.
How to Apply for WOTC
Applying for the WOTC involves engaging a third-party screening company and asking your recruits to visit their website to answer a few qualifying questions during the onboarding process. This service is available to Adams Brown payroll clients. A more detailed explanation of the application process can be found here.
Talk to your Adams Brown advisor about a free consultation and review of your payroll records to determine your eligibility for the WOTC.