Over the years, various businesses have focused on hiring individuals from certain targeted groups. These are those people who face difficulty in finding employment. You should look for a WOTC tax credit if you have such employees. It is the tax credit given by the IRS to the businesses that focus on creating employment for WOTC targeted groups. If you don’t know about the WOTC tax credit, then it’s time to give a few minutes to read this. This post will tell you about the WOTC for business in detail.
What Is The WOTC Tax Credit?
The WOTC (Work Opportunity) tax credit is given to the employers who hire employees from specific groups. The IRS offers this federal tax credit to the employers who hire veterans and other people from the targeted group. The people who fall in the WOTC targeted groups are veterans, long-term unemployed, ex-felons, and people on food stamps.
The one thing to note about the WOTC tax credit is unlimited for employers. It doesn’t matter how many employees you hire from the specific categories. You will receive the WOTC credit as long as they meet the IRS criteria. A single employee can get you the tax credit of about $9500 per year.
How Much Is The WOTC Tax Credit For The Employers?
If you have the WOTC targeted group in your company, you must wonder how much is the WOTC tax credit you can get from the IRC?
The tax credit you receive on an individual’s first year of employment is 25-40% of the wages. The percentage varies on the working hours of the employee of the targeted group. If your employees work 400 hours or more in their first year of employment, you will receive a 25% tax credit on their wages.
On the other hand, you will receive a 40% tax credit on wages if they work at least 120 hours in their first year. The tax credit also depends on the other eligibility criteria defined by the IRS.
List Of The Employees Who Are Eligible For The WOTC Tax Credit
To claim your Work Opportunity Tax Credit, you must know the employees in the specific target groups. We bring you a list of eligible employees for the WOTC tax credit.
- In this category, people’s family members receive Supplemental Nutrition Assistance Program(SNAP).
- They must be unemployed for at least four weeks in the first year.
- The person who is a disabled veteran should be eligible for compensation for disability services.
- A qualified ex-felon is a person who has been charged with a felony in the past.
- These are the people who are convicted of a felony or just released from prison.
Designated Community Resident (DCR)
The group of people who falls in this category are:
- The DCR is at least 18-40 years old on the hire date. The employee should not exceed 40 years according to the eligibility criteria.
- The individual must reside in a renewal community, enterprise community, and empowerment zone.
Vocational Rehabilitation Referral
- The person who falls in this category is the one who has a physical disability.
- These people are referred to the employers after completing the rehabilitative services.
- These are the people who are receiving the assistance of the Social Security Act.
- These are the members of the family who are receiving Temporary Assistance for needy Families(TANF).
- The assistance of these people must be received for any nine months ending on the hiring date.
How Do Employers Claim The WOTC Tax Credit?
Once you have the employees who fall into the WOTC target groups, it is easy to claim the WOTC . You can follow the simple process to claim the Work Opportunity Tax Credit as an employer.
Find The Eligible Employees
The first step in claiming the Work Opportunity tax credit is to find eligible employees. During the hiring process, you need to select the people who come in the category of the targeted groups. To find such people, you can contact the unemployment office or SWA. Moreover, you can announce the vacancy of potential job applicants on various forums and boards.
Screening Of The Applications
Once you have the group of targeted people for the role, it’s time to let the applicants complete the questionnaire on the first page of form 8850. This screening process should be completed before the job offer date. This process aims to filter out the eligible people for the WOTC tax credit.
File The Documents
Once you complete the screening process of the applicants, the next step is to submit the completed form. Form 8850 should be submitted to the SWA within 28 days of the joining date. Make sure you submit form 8850 or ETA form 9061-62 before the deadline.
Analyze The Working Hours
After hiring the WOTC targeted group employees, analyze the working hours and wages. The WOTC qualified employees should work at least 120 hours during the first year of employment. To claim the WOTC tax credit, make the total working and qualified wages records.
Claim The Tax Credit
During filing the annual tax returns, fill up the IRS Form 5884 to claim the WOTC tax credit. For claiming the Work Opportunity tax credit, you must have the records of your employees.
How Will The WOTC Tax Credit Benefit Your Business?
It is hard to estimate which government programs are beneficial for the business. In the case of the Work Opportunity tax credit, you can see the huge benefits in the tax credit form.
According to recent studies, businesses in the U.S. claim around $1 billion in tax credit every year with the help of the WOTC program. You can easily earn $2500 per new hire of the WOTC targeted group. Here are some of the benefits of the WOTC tax credit for businesses.
- With the help of a Work Opportunity tax credit, you can balance your business expenses. With every new hire, you save a good amount on tax credit which helps grow your business.
- It eases the workforce needs of your business at an affordable price. WOTC gives you skilled staff who work at least 120 hours in the first year of employment.
- This tax credit also promotes the goodwill image of your business. In WOTC, you hire people who have faced unemployment for a long time. It means your business provides quality jobs to needy American workers.
WOTC Tax Credit Calculation Chart For Employers
WOTC tax credit calculation chart is an informational document that helps employers calculate tax credits. Employers estimate the WOTC based on each eligible employee during the tax return. The WOTC tax credit calculation chart shows the minimum retention period and maximum tax credit amounts. You can easily calculate the tax credit of your WOTC-eligible employees with the help of this chart.
What Is a Payroll Tax Deferment?
The Payroll Tax Deferment is the tax deferral applied to the employer’s portion of social security. The employer has a social security tax share in a payroll tax moratorium. You can defer the payroll tax of 6.2% on Social security taxes. The payroll tax deferral is applied to all employees whose wages are less than $4000 in 2 weeks and $10,000 annually.
Every year, the business claims its WOTC tax credit due to its eligible employees. There are multiple steps to calculate how much the WOTC tax credit you will receive. The process also involves finding the eligible employee, reviewing and submitting Form 8850, and claiming the tax credit. The information mentioned above explains each step in detail. We hope you will find it helpful in claiming the Work Opportunity Tax Credit.
You can take the help of our expert in the whole process of a tax credit. Business Tax Benefits specializes in providing tax-related services to businesses worldwide. Our professional CPA attorneys with years of experience have top-notch solutions to increase your business profits. We created a complete blueprint for claiming your tax credit.
To claim your WOTC, contact us now.