TL;DR The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals from certain target groups who have consistently faced significant barriers to employment. This guide aims to demystify the process of claiming the WOTC, from identifying eligible new hires to completing the necessary IRS and ETA forms for certification.
WOTC is designed to encourage employers to hire job seekers from specific groups, such as ex-felons, SNAP (Supplemental Nutrition Assistance Program) recipients, qualified veterans, and individuals receiving TANF (Temporary Assistance for Needy Families). By hiring these individuals, employers can reduce their federal income tax liability, providing a tangible incentive to contribute to workforce diversity and inclusion.
Before you can claim the WOTC, you need to identify which of your new hires are eligible. WOTC target groups include:
Before an offer of employment is made, you must have the job applicant complete IRS Form 8850, "Pre-Screening Notice and Certification Request for the Work Opportunity Credit." This form must be completed by the day the job offer is made.
Alongside IRS Form 8850, the new hire must complete ETA Form 9061, "Individual Characteristics Form," or ETA Form 9062 if the job applicant has already been conditionally certified as belonging to a WOTC target group by a state workforce agency or another designated entity.
You must submit both forms (IRS Form 8850 and ETA Form 9061/9062) to your State Workforce Agency (SWA) within 28 days after the new employee’s start date to request certification.
Once the SWA reviews and approves the forms, they will issue a certification stating that the new hire is a member of a WOTC target group.
The credit amount you can claim depends on the target group of the employee, the wages paid to them in their first year of employment, and the number of hours they worked. Generally, the credit is 40% of the first $6,000 in wages for employees who work at least 400 hours.
To claim the credit, you must file Form 5884, "Work Opportunity Credit," with your business’s federal tax return. Additionally, you must include the credit amount from Form 5884 on Form 3800, "General Business Credit."
Understanding the timing for submitting forms and claiming the credit is crucial. Delays or inaccuracies can result in the denial of the WOTC claim.
Maintain detailed records of all WOTC documentation, including the certification from the SWA, the hours worked, and wages paid to the eligible employee.
Ensure compliance with all WOTC requirements and guidelines set forth by the IRS and the U.S. Department of Labor (DOL). Regularly check for updates to the program or changes in legislation that may affect your ability to claim the credit.
To maximize the benefits of WOTC, develop a systematic approach to identifying eligible job applicants and streamline the process for completing and submitting the necessary forms.
Employers need to complete IRS Form 8850 and ETA Form 9061 or 9062. These forms must be submitted to the State Workforce Agency (SWA) within 28 days of the employee's start date.
Form 8850 should be completed by the job applicant and employer before or on the day the job offer is made. It serves as a pre-screening tool to determine the individual's eligibility for WOTC.
Employers should submit the completed IRS Form 8850 and ETA Form 9061/9062 to their State Workforce Agency (SWA) within 28 days following the employee’s start date to request certification.
Yes, tax-exempt organizations can claim the WOTC for hiring qualified veterans. They must file Form 5884-C, "Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans."
The processing time can vary by state. Employers can contact their State Workforce Agency to get an estimate of the processing time.
Yes, if the tax credit exceeds the employer's tax liability, it can be carried back one year or forward 20 years until utilized.
The credit is pro-rated based on the number of hours the employee worked. Employees must work a minimum of 120 hours for the employer to receive any credit.
Yes, certain groups, like veterans or long-term unemployment recipients, may qualify the employer for a larger credit. Employers should carefully review the specific qualifications for each target group.
No, WOTC is only available for new hires. Employees must be new to the company and meet one of the target group criteria.
By understanding these frequently asked questions, employers can better navigate the WOTC program and optimize their hiring practices to take full advantage of the available tax credits.
The Work Opportunity Tax Credit offers a valuable opportunity for employers to support job seekers facing employment barriers while benefiting from a reduction in federal tax liability. By following these steps and ensuring compliance with the program's requirements, employers can effectively leverage the WOTC to foster a more inclusive and diverse workforce.
Employers are encouraged to consult with tax professionals or legal advisors to ensure they navigate the WOTC process effectively and comply with all relevant regulations and guidelines. With a strategic approach, the WOTC can be a win-win for employers and employees alike, contributing to meaningful employment opportunities for individuals who need them most.
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WOTC is designed to encourage employers to hire job seekers from specific groups, such as ex-felons, SNAP (Supplemental Nutrition Assistance Program) recipients, qualified veterans, and individuals receiving TANF (Temporary Assistance for Needy Families). By hiring these individuals, employers can reduce their federal income tax liability, providing a tangible incentive to contribute to workforce diversity and inclusion.
Before you can claim the WOTC, you need to identify which of your new hires are eligible. WOTC target groups include:
Before an offer of employment is made, you must have the job applicant complete IRS Form 8850, "Pre-Screening Notice and Certification Request for the Work Opportunity Credit." This form must be completed by the day the job offer is made.
Alongside IRS Form 8850, the new hire must complete ETA Form 9061, "Individual Characteristics Form," or ETA Form 9062 if the job applicant has already been conditionally certified as belonging to a WOTC target group by a state workforce agency or another designated entity.
You must submit both forms (IRS Form 8850 and ETA Form 9061/9062) to your State Workforce Agency (SWA) within 28 days after the new employee’s start date to request certification.
Once the SWA reviews and approves the forms, they will issue a certification stating that the new hire is a member of a WOTC target group.
The credit amount you can claim depends on the target group of the employee, the wages paid to them in their first year of employment, and the number of hours they worked. Generally, the credit is 40% of the first $6,000 in wages for employees who work at least 400 hours.
To claim the credit, you must file Form 5884, "Work Opportunity Credit," with your business’s federal tax return. Additionally, you must include the credit amount from Form 5884 on Form 3800, "General Business Credit."
Understanding the timing for submitting forms and claiming the credit is crucial. Delays or inaccuracies can result in the denial of the WOTC claim.
Maintain detailed records of all WOTC documentation, including the certification from the SWA, the hours worked, and wages paid to the eligible employee.
Ensure compliance with all WOTC requirements and guidelines set forth by the IRS and the U.S. Department of Labor (DOL). Regularly check for updates to the program or changes in legislation that may affect your ability to claim the credit.
To maximize the benefits of WOTC, develop a systematic approach to identifying eligible job applicants and streamline the process for completing and submitting the necessary forms.
Employers need to complete IRS Form 8850 and ETA Form 9061 or 9062. These forms must be submitted to the State Workforce Agency (SWA) within 28 days of the employee's start date.
Form 8850 should be completed by the job applicant and employer before or on the day the job offer is made. It serves as a pre-screening tool to determine the individual's eligibility for WOTC.
Employers should submit the completed IRS Form 8850 and ETA Form 9061/9062 to their State Workforce Agency (SWA) within 28 days following the employee’s start date to request certification.
Yes, tax-exempt organizations can claim the WOTC for hiring qualified veterans. They must file Form 5884-C, "Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans."
The processing time can vary by state. Employers can contact their State Workforce Agency to get an estimate of the processing time.
Yes, if the tax credit exceeds the employer's tax liability, it can be carried back one year or forward 20 years until utilized.
The credit is pro-rated based on the number of hours the employee worked. Employees must work a minimum of 120 hours for the employer to receive any credit.
Yes, certain groups, like veterans or long-term unemployment recipients, may qualify the employer for a larger credit. Employers should carefully review the specific qualifications for each target group.
No, WOTC is only available for new hires. Employees must be new to the company and meet one of the target group criteria.
By understanding these frequently asked questions, employers can better navigate the WOTC program and optimize their hiring practices to take full advantage of the available tax credits.
The Work Opportunity Tax Credit offers a valuable opportunity for employers to support job seekers facing employment barriers while benefiting from a reduction in federal tax liability. By following these steps and ensuring compliance with the program's requirements, employers can effectively leverage the WOTC to foster a more inclusive and diverse workforce.
Employers are encouraged to consult with tax professionals or legal advisors to ensure they navigate the WOTC process effectively and comply with all relevant regulations and guidelines. With a strategic approach, the WOTC can be a win-win for employers and employees alike, contributing to meaningful employment opportunities for individuals who need them most.
Built by 2x disability-focused founders, the software is a workplace ADA and PWFA accommodations platform for companies focused on making workplaces inclusive for everyone. Disclo is a HIPAA-compliant platform that requests, tracks, and manages workplace accommodations—all in one place.
Disclo makes handling accommodations seamless by combining automation, in-app medical e-verification, out-of-the-box analytics (so you can auto-track against EEOC and ADA standards), and the ability to connect to any HRIS and ATS with pre-built integrations.
Strengthen workplace inclusivity and future-proof ADA and PWFA processes while establishing a digital paper trail for your organization. Learn more at disclo.com/demo.
