The Work Opportunity Tax Credit (WOTC) is a federal income tax credit that can be claimed by employers who hire employees from one of nine targeted groups.
The WOTC can be as much as:
- $2,400 for each new adult hire,
- $1,200 for each summer youth hire,
- $4,800 for each new disabled veteran hire, and
- $9,000 for each new long-term Temporary Assistance for Needy Families (TANF) recipient hired over a 2-year period.
Businesses may qualify for the WOTC by hiring from one of the following nine targeted groups:
- Long-term TANF recipient - member of a family that received Temporary Assistance for Needy Families (TANF) for at least 18 consecutive months ending on the hiring date, or a member of a family that received TANF for any 18 months beginning after August 5, 1997 and ended during the past 2 years ending on the hiring date, or whose family stopped being eligible for TANF because federal or state law limited the maximum time those payments could be made, and the individual is hired not more than 2 years after such eligibility ended.
- Other TANF recipient - member of a family that received TANF payments for any 9 months during the 18-month period ending on the hiring date.
- Veterans - member of a family that received food stamps for at least a 3-month period during the 15 months before the date of hire, or a disabled veteran entitled to compensation for a service-connected disability hired within one year of discharge or release from active duty or unemployed for a period or periods totaling at least 6 months of the year ending on the hiring date.
- 18-39 year-old food stamp recipient - member of a family that received food stamps for either the 6-month period ending on the hire date, or for at least 3 of the 5 months ending on the hiring date in the case of a family member who ceased to be eligible for such assistance under Section 6(o) of the Food Stamp Act of 1977.
- 18-39 year-old designated community resident - individual who lives within one of the federally designated Empowerment Zones (EZ), Renewal Communities (RC), or Rural Renewal Counties. Click here to locate EZ/RC areas, or call 1-800-998-9999.
- 16-17 year-old summer youth - individual who works for the employer between May 1 and September 15, and lives in an EZ or RC.
- Vocational rehabilitation referral - an individual who is physically or mentally disabled referred to the employer upon completion of (or while receiving) rehabilitative services approved by a State, the Ticket-to-Work Program, or the U.S. Department of Veterans Affairs.
- Ex-felon - individual who was convicted of a felony and who is hired within one year after the conviction or release from prison.
- SSI recipient - individual who received Supplemental Security Income benefits for any month ending during the 60 days preceding the date of hire.
Calculating the WOTC
The WOTC provides the employer with an income tax credit for the first year of employment that is based upon the qualified wages and the number of hours the employee works annually. Employees must work at least 120 hours to qualify. Generally, wages are capped at $6,000. If the employee works:
Certain types of hires have the following exceptions:
- At least 120 hours but less than 400 hours: The employer can claim an income tax credit on 25 percent of the employee's first year wages up to $6,000 (for a maximum credit of $1,500).
- At least 400 hours: The employer can claim an income tax credit on 40 percent of the employee's first year wages up to $6,000 (for a maximum credit of $2,400).
- Summer youth employees. Employers who hire qualified summer youth are eligible for a maximum credit of either $750 (if the youth worked between 120 and 400 hours) or $1,200 (if the youth worked at least 400 hours). Summer youth wages are capped at $3,000 when figuring the amount of the credit.
- Disabled veterans. Wages are capped at $12,000.
- Long-term TANF recipients. Wages are capped at $10,000. The WOTC is also available for the employee's qualified second-year wages, also capped at $10,000. The credit is 50% of qualified wages for the second year of employment.
Applying for the WOTC
Employers must apply for and receive certification from their state workforce agency (SWA) that their new hire is a member of one of the WOTC targeted groups before they can claim the credit on their federal income tax return. To apply for certification, employers must:
- Complete page 1 of IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunit Tax Credit, by the date of the job offer, and page 2 of IRS Form 8850 after the individual is hired; and
- Complete one of the following U.S. Department of Labor forms:
- ETA Form 9061, Individual Characteristics Form, if the new hire has not been given a conditional certification, or
- ETA Form 9062, Conditional Certification Form, if provided to the new employee by a participating agency, such as a vocational rehabilitation agency, an employment network or an SWA; and
- Mail the signed and dated IRS and ETA forms to the state workforce agency's WOTC Coordinator not later than 28 days after the new hire's employment start date.
Obtaining Forms: You can obtain the required forms by viewing and printing them online, requesting them by phone, or requesting them by fax.
|IRS Form 8850
|ETA Form 9061
|State WOTC Coordinators