Work Opportunity Tax Credit can Help Employers Hiring New Workers

The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.
To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work.
There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time. The other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:

• Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
• Unemployed veterans, including disabled veterans
• Ex-felons
• Designated community residents living in Empowerment Zones or Rural Renewal Counties
• Vocational rehabilitation referrals
• Summer youth employees living in Empowerment Zones
• Food stamp (SNAP) recipients
• Supplemental Security Income (SSI) recipients
• Long-term family assistance recipients
• Qualified long-term unemployment recipients.

Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C.


Source: Internal Revenue Service

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The Work Opportunity Tax Credit (WOTC) - Earn Federal Income Tax Credits for your Company

WOTC is a federal income tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
The WOTC tax credit is a one-time tax credit for each new hire – and there is no limit to the number of new hires who can qualify an employer for a tax credit. 

What are the WOTC target groups ?

• Qualified Veterans 
• Qualified Disabled Veterans 
• Qualified Unemployed Veterans 
• Qualified Designated Community Resident 
• Qualified Ex-Felons 
• Qualified Vocational Rehabilitation Recipient (requires release form) 
• Qualified Supplemental Nutritional Assistance Program (SNAP) (Food Stamps) Recipient 
• Qualified Supplemental Security Income (SSI) Recipient (requires release form)
• Qualified Recipients of Temporary Assistance to Needy Families (TANF) 
• Qualified Summer Youth

The WOTC Program has been reauthorized through December 31, 2019. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.
The credit is limited to the amount of the business income tax liability or social security tax owed.

The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired and the number of hours worked in the first year. Employees must work at least 120 hours in the first year of employment to receive the tax credit.
Relatives or dependents (this includes a spouse), majority owners of the employer, and former employees do not qualify for WOTC.

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