Work Opportunity Tax Credit (WOTC): Eligibility, Process & Value

Running a business means juggling many responsibilities—especially when hiring. The Work Opportunity Tax Credit (WOTC) is one way you can make your hiring budget go further, all while supporting people in your community who need a chance. At Green Payroll, we’re here to help you understand and easily take advantage of this valuable program.

What Is the Work Opportunity Tax Credit (WOTC)?

WOTC is a federal incentive program designed to encourage employers to hire individuals from certain target groups who have consistently faced significant barriers to employment. By participating in the WOTC program, businesses can potentially reduce their federal income tax liability based on the number of qualifying new hires. (Learn more on the IRS Work Opportunity Tax Credit page.)

What is an “Eligible Group” for WOTC Hiring?

Eligible groups include veterans, individuals receiving government assistance, those with disabilities, ex-felons, and long-term unemployed individuals, among others.

What is the Value of the Work Opportunity Tax Credit?

The actual value of the credit varies, but it can range from $1,200 to $9,600 per eligible employee, depending on the specific target group and hours worked.

Why Should I Take Advantage of the WOTC?

Taking advantage of the WOTC can help you save thousands of dollars each year—funds you can reinvest in your business and your team. Even better, you’ll be supporting a more diverse and inclusive workforce. It’s an opportunity to maximize your hiring budget while making a positive impact on both your business and your community.

The credit itself and how to see the money in real dollars… This is the fun part! Once established, the WOTC can be a highly lucrative part of your hiring process- even to an amount to completely cover an outsourcing of payroll to a service provider. To claim, at this point in the process, is a gathering of the data used to hire the employee and submission to whoever is completing the income tax return. The information is essentially a line item on the return on the business as direct credit. This is where the “rubber meets the road” and employers now can fully see their investment payoff.

Application for the WOTC

Employers must complete the necessary paperwork—typically within 28 days of the employee’s start date—to claim the credit.

To apply for these tax credits, employers historically have a few items that are needed for documentation and application to verify eligibility. (For detailed program guidelines and forms, visit the U.S. Department of Labor WOTC page.)

Initially, employers must have a pre-screening form from the IRS, which means employers must:

1. Identify whether you new hire is part of an eligible group.
2. Complete Forms 8850 & 9061 for each qualifying employee. (These are the formal IRS request forms that allow for the process of qualifying employees in the government’s eyes to begin.)
3. Submit this information to the IRS within 28 days of a new hire.
4. Get certification from the State Workforce Agency. (SWAs will audit new hires to confirm employees are part of the the targeted group.) Pro Tip: Find your state’s WOTC coordinator’s contact information here!
5. Track the employee’s hours. (Each employee must work at least 120 hours in their first year of employment to qualify.)
6. Claim the credit! You’ll do this through year-end tax filings.

There is synergy with this timeline as it relates to new hires. This time frame essentially coincides with submitting new hire information anyway!

Pro Tip: Integrate WOTC paperwork into your electronic onboarding process. This way, you don’t miss deadlines or tax credit opportunities, you avoid fines and penalties for not filing, and you keep all of your documentation organized. A payroll/HR service like Green Payroll that specializes in WOTC and tax credits can also help handle processing all of this information for you!

Limitations and Restrictions on the Work Opportunity Tax Credit

This credit can be worth up to $9600 per qualified employee from the targeted groups. Hours worked during the initial year of employment directly contribute to this total. Hence it being so critical to track the hours worked for reporting purposes!

With that said, there are a couple of restrictions to keep in mind:

• The amount you can claim is limited by how much you owe in business income or Social Security taxes.
• The WOTC is a non-refundable federal tax credit. This means it can theoretically reduce your tax bill to a $0.00 dollar amount but will not trigger a tax refund if the credit is greater than your tax liability.

Conclusion

The WOTC is a great tool for employers to use as incentives into hiring and allows employers to receive direct funds back to them as a result of hiring targeted groups. It’s also a wonderful way to provide opportunities for people in your community who have faced real barriers to employment. Many industries such as restaurants/food service and construction can see very real returns when using this strategy. (For more restaurant payroll tips, check out our blog No Tax on Tips: Guide for Employees and Payroll Teams!)

Want to see how much your business could sav with the WOTC? Contact Green Payroll for a free consultation! We’ll talk you though the process, answer your questions, and help ensure you never miss a credit opportunity.