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The Tax Cuts & Jobs Act, (2017) Part 6 - Why You Should be Taking Advantage of WOTC in Your Business

Feb 21, 2018 4:27:00 PM

The final entry in our 6-part series on Tax and Tax reform we wanted to discuss something every employer should be taking advantage of, Work Opportunity Tax Credit (WOTC). Defined by the United States Department of Labor (DOL), WOTC, “is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant 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  (United States Department of Labor, 2017). Though the Tax Cuts and Jobs Act of 2017 (TCJA) has made some major changes in the world of tax, the DOL has confirmed that the WOTC was not going to be affected by the reform; it will be available through December 31st, 2019. Interested? Let’s delve deeper into how the WOTC works.

“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.” (United States Department of Labor, 2017)

An exception exists for one target group, the Temporary Assistance for Needy Families (TANF). Hires from this group can net an employer up to 40% of first year wages if the new hire works at least 400 hours. However in the new hire’s second year the employer can claim a credit up to 50% of the second-year wages so long as the employee works at least 400 hours.

Any hires from other 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
  • Temporary Assistance for Needy Families (TANF)
  • SNAP (Food Stamp) Recipients
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational Rehabilitation Referral
  • Ex-felons
  • Supplemental Security Income Recipients
  • Summer Youth Employee (living in Empowerment Zones)

The WOTC is a fantastic program that both benefits individuals who can struggle to find employment, and those who hire them. Nowadays many Onboarding/Applicant Tracking systems can even 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!

Curious to see what you could be making from this tax credit? The DOL offers a WOTC Calculator for you to do just that. You can CLICK HERE to try it out for yourself.

If you want to learn more about getting WOTC implemented for your business, you can click HERE & HERE for guidelines on the application process, or feel free to reach out to us directly using the form below.

 

 

Bibliography

United States Department of Labor. (2017). Work Opportunity Tax Credit. Retrieved from United States Department of Labor Employement and Training Administration: https://www.doleta.gov/business/incentives/opptax/wotcEmployers.cfm#HowDoIApply

 

 

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