If you’re looking to hire, you may be able to use a valuable tax credit to recruit from one or more groups. Employers can qualify for the Work Opportunity Tax Credit (WOTC), which is worth as much as $2,400 for most eligible employees. The credit is limited to eligible employees who begin work before January 1, 2026.
Who is eligible?
Generally, an employer is eligible for the WOTC only for qualified wages paid to members of a targeted group. These groups are:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
- Qualified veterans
- Qualified ex-felons
- Designated community residents
- Vocational rehabilitation referrals
- Qualified summer youth employees
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP)
- Qualified Supplemental Security Income recipients
- Long-term family assistance recipients
- Long-term unemployed individuals
To claim the WOTC, an employer must first get certification that the person hired is a member of one of the targeted groups above. An employer can do so by submitting Form 8850, Pre-Screening Notice and Certification Request for the WOTC, to their state agency within 28 days after the eligible worker begins work.
You must meet certain requirements
There are several requirements to qualify for the credit. For example, each employee must have completed a specific number of hours of service for the employer. Also, the credit is not available for employees who are related to or who previously worked for the employer.
There are different rules and credit amounts for different employees. The maximum credit available for first-year wages is generally $2,400 per employee. But it is $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there is a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.
An eligible employer claims the WOTC on its federal income tax return. The credit value is limited to the business’s income tax liability.
A valuable credit
There are additional rules and requirements. In some cases employers may elect not to claim the WOTC, and in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, the credit can be worthwhile for most employers hiring from targeted groups.
This column is for information only and should not be considered actionable advice. Decisions involving taxes are often complex and mistakes can be costly. Consider talking with an advisor knowledgeable about WOTC before taking any actions.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203 254-3880.
