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Why You Should be Taking Advantage of WOTC in Your Business

Apr 13, 2022 4:27:00 PM

Every employer should be taking advantage of the Work Opportunity Tax Credit (WOTC). Defined by the United States Department of Labor (DOL), WOTC “is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment.” Employers are reported to gain approximately $1 billion in tax credits every year under this program with no limit on the number of individuals a company can hire to qualify. The Consolidated Appropriation Act, 2021, authorized the extension of the Work Opportunity Tax Credit (WOTC) until December 31, 2025.

 Interested? Let’s delve deeper into how the WOTC works.

How WOTC Works

According to the DOL, "The tax credit employers can claim depends upon the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that can be earned.” 

Any hires from targeted groups adhere to the following credit rules:

  • If a new hire works at least 120 hours the employer can claim a tax credit equal to 25% of the hire’s first-year wages (only up to the maximum tax credit).
  • If a new hire works at least 400 hours the employer can claim a tax credit equal to 40% of the new hire’s first-year wages (only up to the maximum tax credit).

As an employer, the WOTC encourages you to employ individuals from targeted groups over a longer period of time, this will get you a much higher percentage of the tax credit.

As mentioned earlier, only new hires from specific target groups can have the WOTC applied. Here’s a current list of the applicable groups from the US Department of Labor:

  • Veterans
  • Designated Community Resident
  • SNAP (Food Stamp) Recipients
  • Vocational Rehabilitation Referral
  • Ex-felons
  • Supplemental Security Income Recipients
  • Summer Youth Employee (living in Empowerment Zones)
  • Long-Term Family Assistance Recipient
  • Qualified Long-Term Unemployment Recipient

Who Benefits from the WOTC

The WOTC is a program that benefits individuals who struggle to find employment and those who hire them.  Employers receive a decent tax credit, which can be up to $9,600 for each qualified new hire. By incentivizing increased hiring of certain groups, those individuals are able to become self-sufficient with a steady income. 

How to Get Started with the WOTC

Nowadays many employee onboarding and applicant tracking systems include the official forms to determine if an applicant belongs to a targeted group to make it even easier to decide on a new hire. Make sure that you get all the IRS and ETA forms for your new hire belonging to a targeted group submitted within 28 calendar days of the employee’s start date or you won’t be able to take advantage of the credit. 

If you're interested in learning more about WOTC and solutions to help streamline the process, contact Proliant today. 



About Proliant

Proliant puts the human in human resources. We provide a fully integrated, cloud-based HCM solution that simplifies payroll and HR processes. The company serves small to large clients in multiple industries in all 50 states and is committed to providing the highest quality customer service in the industry.

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