Many employers know that there are tax credits available for hiring certain types of employees. But they may not realize the level of value these incentives can bring to their company. What is WOTC screening? How much can it really impact a business? Is it worth the effort to participate?
Brief Overview of WOTC
Since 1996, the federal government has used the Work Opportunity Tax Credit program to reduce the federal tax liability of employers who hire individuals from groups that often face obstacles to employment. The WOTC is intended to:
- Provide veterans an easier transition back into the workforce after serving in the armed forces or help them find work after experiencing a service-related disability.
- Help families living at or near the poverty line become more self-sufficient and less reliant on government aid programs such as TANF or SNAP.
- Give at-risk youth in distressed communities a chance for a better future with a good job.
- Assist people who have previously been convicted of felonies so they don’t go back to a life of crime.
How Big Are these Incentives?
Tax credits are available for both part-time and full-time new hires and are calculated based on a percentage of the wages earned and hours worked. As of 2016, the maximum tax credit per new hire was $9,600. This highest level of incentive would apply to hiring a disabled veteran who had been out of work for at least six months out of the one year period prior to the date of hire.
Other designated target groups qualify for different maximum amounts. At the low end of the scale, a WOTC-certified new hire working at least 120 hours in the year could qualify the employer to claim 25% of the first year’s wages for a tax credit of as much as $1,500.That’s still a lot of money compared to the short amount of time it takes to screen new hires and handle the documentation—especially if it is part of a streamlined onboarding process.
How Do Employers Miss Out—and What Can They Do Differently?
There is no limit to the number of qualifying individuals an employer can hire in order to claim these tax credits. But an organization must screen and process job candidates and new hires correctly! Otherwise, they risk losing out on thousands of dollars in tax savings each year.
Employers make two mistakes in this area. They fail to screen job candidates and/or new hires to see whether they meet the certification criteria. Or, they fail to follow up in a timely manner to meet the 28 day filing deadline. To stop overpaying taxes each year, businesses should screen all new hires to see if they are in any of the WOTC target groups.
Employers who want to fully maximize these tax credits may also wish to reach out to local organizations and agencies that specialize in helping eligible individuals find work. This will increase the number of WOTC-qualified candidates being interviewed for jobs. Here are just a few ideas to get started.
- Connect with the state workforce agency to express an interest in hiring WOTC-qualified individuals.
- Post open positions on the Veteran’s Employment Center website and veteran-focused job fairs.
- Work with community leaders who are focused on helping at-risk youth and underprivileged families.
- Reach out to organizations that work with ex-offenders to be added to a list of employers who are open to hiring job candidates who need a second chance.
Above all, make sure the forms 8850 and 9061 are always part of the onboarding process to screen for qualified new hires and capture all available credits. Contact our team today to learn how to make this process as efficient as possible.