Over $1 billion in tax credits are claimed annually through the federal Work Opportunity Tax Credit program (WOTC). Through WOTC, run by the U.S. Department of Labor (DOL), federal tax credits of up to $9,600 per employee are available to employers for hiring individuals from target groups that consistently faced barriers to employment.
Below are five things to help your organization get started with its WOTC program:
- Target Groups
Currently, the IRS identifies 10 target groups eligible for WOTC certification: Veterans, ex-felons, designated community residents, vocational rehabilitation referrals, Supplemental Security Income (SSI) recipients, Supplemental Nutrition Assistance Program (SNAP) recipients, long-term family assistance recipients, people receiving temporary assistance for needy families, qualified long-term unemployment recipients, and summer youth employees living in empowerment zones. If you hire people from these groups to become employees, you should be eligible to receive tax credits.
- Credit Calculation
Employers can earn between 25% to 40% of a qualified employee’s wages, depending on the target group. In order to receive a credit, the employee must have worked a minimum of 120 hours, with higher credit amounts available upon the employee’s completion of 400 hours of service. Your payroll company or a third-party vendor can assist you with these calculations.
- Screening Process
There are many ways to determine if a candidate is eligible for WOTC certification. In the past, organizations may have screened candidates in person using a paper form. Technology has now made it possible to do this interview using an online web portal, like Humanefits, where everything is stored in a centralized location. Another popular option to improve WOTC certifications is to use a call center to supplement the use of the online web portal. The call center ensures that the screening questions on the portal have been answered completely and accurately.
- Filing Process
Employers must file their WOTC paperwork with the State Workforce Agency (SWA) in the state in which their business is located once the screening process is complete. Employers have 28 days from when they hire an employee to submit IRS Form 8850 and U.S. DOL Employment and Training Administration (ETA) Form 9061 or Form 9062. Many states will allow you to submit this information electronically. Check with the State Workforce Agency in your state to learn if they will accept WOTC information electronically.
- Record Retention
Employers should keep their records of certification and employee records to verify certification amounts based on wages and hours of service. In the event the IRS inquiries about the tax savings recorded, your organization will want to have this information readily available.
Employers that are hesitant to implement a WOTC program because of the administrative burden it may impose should consider hiring third-party vendors that can help oversee and manage the entire WOTC process, from document retention to screening to submitting the WOTC information to State Workforce agencies. They also may provide free tools, such as automated workforce management programs and call centers to improve verification of employee information required by WOTC. Integrating the WOTC application process into an online platform can allow for a seamless process for WOTC pre-screening, employee on-boarding, and call center screening.
The results will be more money available to invest in your organization and providing people seeking work in your community the chance to become gainfully employed.