Did you know you could receive a tax credit for hiring individuals who have been unemployed?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit for hiring individuals from certain target groups who face significant barriers to employment—including individuals who have been unemployed for 27 weeks or longer.
With unemployment skyrocketing, now is the time to take advantage WOTC. The credit can help offset the cost of hourly turnover and cover other retention incentives, like bonuses!
Employers claim about $1 billion in tax credits each year under the WOTC program—but there’s a lot of real cash being missed by employers unaware of the credit. Here are some questions we can answer for you…
Who qualifies under WOTC?
To qualify, a new hire must fit into one of the target groups identified by the Department of Labor, which includes long-term unemployment recipients, food-stamp (SNAP) recipients, and more. For a complete list, see the IRS Form 8850 Instructions here.
A new hire must work a minimum of 120 hours during the first year of employment for the employer to receive a credit. Employers can receive a tax credit for each eligible hire; there’s no limit to the amount of credit an employer can claim!
Can I receive WOTC credit for rehiring an individual I laid off during the pandemic?
Unfortunately, no. Rehires are not eligible for WOTC even if they were not eligible in the past and could be now.
How much tax credit can I receive for someone who was unemployed?
You can earn a maximum credit of $2,400 for each employee on long-term unemployment at the time of hire. Employers earn a credit equal to 25% of the employee’s wages if the individual works at least 120 hours in the first year and 40% if the individual works at least 400 hours—up to the $2,400 cap. Some other target groups offer a larger credit, with the highest being $9,600 for providing a job for a disabled veteran.
Hiring and retaining WOTC eligible employees comes with a perk, real cash to the bottom line!
As an employer, how do I apply for a tax credit?
Individuals fill out IRS Form 8850 on paper/PDF, or they can complete and sign a screening questionnaire electronically, often through an applicant tracking system or onboarding software.
Employers can’t require individuals to answer the qualifying questions, but voluntary participation is high when the process is incorporated into an electronic hiring process, like Efficient Hire Onboarding with the WOTC Q&A in plain English or Spanish.
The screening questions are compliant with Equal Employment Opportunity laws, so you can use the information in your hiring decisions. The WOTC program’s intent is to give employers an incentive to take a chance on somebody who has struggled in finding a job or keeping a job.
How do I submit the certification information?
Certification information must be submitted ASAP. Submit Form 8850 and other required information to your state workforce agency within 28 calendar days of the new hire’s start date. Include ETA Form 9061 or Form 9062; this information can also be gathered along with the Form 8850 details through a one-stop process using an electronic hiring process. When hiring unemployed individuals, ETA Form 9175 must be included – the Long-Term Unemployment Recipient Self-Attestation Form.
This process is tedious and often mistakes are made resulting in a denial when done manually. It’s critical to have a WOTC expert, like Efficient Hire, in order to manage the process automatically and maximize your return!
How do I claim the tax credit?
You will need to track the hours and wages of employees that your state certifies as WOTC eligible. This information is required to claim your tax credit using IRS Form 5884 and IRS Form 3800. Note: The information described in this blog is purely informational and not meant as legal advice. Please consult a tax attorney for your specific tax needs!
Efficient Hire has been helping employers with WOTC screening and processing since 2014. Some WOTC administrator charge a monthly service fee – where you pay nothing until you receive a tax credit with Efficient Hire.
If you’re hiring, you have probably already hired many WOTC eligible employees! Now is the time to take advantage of a win-win with WOTC! Get in touch with our experts if you have any questions or need to get started right away! We really do make hiring easier.