The Work Opportunity Tax Credit

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The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain groups who face barriers to employment. The maximum tax credit ranges from $1,200 to $9,600 per employee, depending on the employee hired. There is no limit on the number of individuals an employer can hire to qualify for the credit.

Many of these groups are likely to include people with disabilities:

Veterans

Veterans may qualify for WOTC if they fall under one of these categories:

1. A member of a family that received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date.

2. Entitled to compensation for a service-connected disability, and:

 

  • Hired within 1 year of discharge or release from active duty
  • Unemployed at least 6 months in the year ending on the hiring date

3. Unemployed, and:

 

  • At least 4 weeks in the year ending on the hiring date
  • At least 6 months in the year ending on the hiring date

To be a veteran eligible for WOTC, an individual must meet these two standards:

  1. Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability
  2. Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date

Benefit Recipients

People receiving certain kinds of government benefits may qualify for WOTC:

Long-term Temporary Assistance for Needy Families (TANF) Recipient:

A member of a family that meets one of the following circumstances:

  • Received TANF benefits for at least 18 consecutive months ending on the hiring date.
  • Received TANF benefits for at least 18 consecutive or non-consecutive months after August 5, 1997, and has a hiring date that is not more than 2 years after the end of the earliest 18-month period after August 5, 1997.
  • Stopped being eligible for TANF payments during the past 2 years because a Federal or state law limited the maximum time those payments could be made.

Short-term TANF Recipient:

A member of a family that received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.

SNAP (food stamp) Recipient:

An 18-39 year old member of a family that received Supplemental Nutrition Assistance Program (SNAP) benefits for the 6 months ending of the hiring date or received SNAP benefits for at least 3 of the 5 months ending on the hiring date.

Vocational Rehabilitation Referral:

An individual with a disability who completed or is completing rehabilitative services from a state-certified agency, an Employment Network under the Ticket to Work program, or the U.S. Department of Veteran Affairs.

Supplemental Security Income (SSI) recipient:

A recipient of SSI benefits for any month ending during the past 60-day period ending on the hire date.

How WOTC Works

The tax credit employers can claim depends on 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.

  1. If the individual works at least 120 hours, the employer may claim a tax credit equal to 25% of the individual’s first year wages, up to the maximum tax credit.
  2. If the individual works at least 400 hours, the employer may claim a tax credit equal to 40% of the individual’s first year wages, up to the maximum tax credit.

For the Long-term Temporary Assistance for Needy Families (TANF) target group, the credit is available to employers who hire members of this group for a two-year period.

  1. If the individual works at least 120 hours in the first year, the employer may claim a tax credit equal to 40% of first year wages, up to the maximum tax credit.
  2. If the individual works at least 400 hours in the second year, the employer may claim a tax credit equal to 50% of second year wages, up to the maximum tax credit.

How To Apply

  1. Complete page 1 of IRS Form 8850 by the day the job offer is made.
  2. Complete page 2 of IRS Form 8850 after the individual is hired.
  3. Complete ETA Form 9061 or ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a state workforce agency, Vocational Rehabilitation agency, or another participating agency.
  4. Submit the completed and signed IRS and ETA forms to your state workforce agency. (See address below.) Forms must be submitted within 28 calendar days of the employee’s start date.

In Indiana, you can apply electronically here.
For questions or more information, or to apply by postal mail, contact the Indiana Department of Workforce Development:
Indiana Department of Workforce Development
Work Opportunity Tax Credit Program, SE311
10 North Senate Ave
Indianapolis, IN 46204
wotc@dwd.in.gov

Note for Tax-Exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before Jan.1, 2014. Tax-exempt employers may not claim the WOTC for other targeted group members.

After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).

File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit as the forms are processed separately.

 


Information courtesy of US Department of Labor and The Internal Revenue Service