The Work Opportunity Tax Credit, or WOTC, is a program that offers incentives to employers who hire certain classes of employee. The rules are fairly stringent, but the rewards can be immense. This is especially true for employers who were already planning to expand their workforce. The IRS has extended the deadline for complying with the regulations governing this tax credit so more businesses can take advantage.
What Is the Work Opportunity Tax Credit?
The WOTC expired last year but was extended under the Protecting Americans from Tax Hikes (PATH) Act. Employers receive substantial tax credits for hiring people who have been unemployed long term and are part of certain groups such as:
- Recipients of government aid programs such as TANF or SNAP (formerly called food stamps)
- Veterans, including those with disabilities
- People undergoing vocational rehabilitations
- People living in communities designated as Empowerment Zones or Rural Renewal Counties
- Ex-felons
- People who have been unemployed for 26 or more weeks and received state or federal unemployment benefits
If you hire someone who falls into these classes or have hired them in 2015, you can receive tax credits including up to 25% of wages for employees working ten or more hours in the year and up to 40% of wages for those working 400 or more hours. Employers must file for these credits in the next three months.
Making the WOTC Work for You?
As with all tax credits, the WOTC includes a great deal of fine print. Employers must get certification that a new hire is eligible for the WOTC by filing a Form 8850 with the Department of Labor within 28 days of the employee beginning work. This certifies that the new hire is eligible for the tax credit. However, this 28 day deadline has been extended for employees who began work in 2015 and through September 1, 2016.
If you want to expand your business by adding new workers, this tax credit can defray a great deal of the cost in the first year. In addition, it gets chronically unemployed groups back in the workforce, which benefits us all.
