Employers can receive tax credits for hiring certain underprivileged individuals, such as veterans, disadvantaged youth, ex-felons, and people who have received government assistance.

 

The Work Opportunity Tax Credit (WOTC) program has existed for over a decade while being modified and extended over time to meet the needs of government and business entities.  It is an incentive designed to provide job opportunities to groups who have traditionally had difficulty obtaining gainful employment. 

 

Currently, there are twelve target groups for WOTC:

1. Long-term Temporary Assistance for Needy Families (TANF) recipients;
2. Certain other TANF recipients;
3. Veterans;
4. Food stamp recipients who are between 18 and 39 years of age;
5. Designated community residents who are 18-39 years of age;
6. Vocational rehabilitation referrals;
7. Summer youth ages 16-17;
8. Ex-felons;
9. Supplemental security income recipients;
10. Hurricane Katrina employees;
11. Unemployed Veterans;
12. Disconnected Youth.

An employer who hires individuals (except relatives, dependents, majority owners or former employees) from any of the first ten target groups listed above, prior to September 1, 2011, and pays qualified wages, can claim the WOTC on Form 5884 by attaching it to their income tax return. Individuals hired from “unemployed veterans” and “disconnected youth” groups must begin work for an employer in 2009 or 2010 for the WOTC eligibility.

 

With the exception of “Hurricane Katrina employees”, certification of each employee claimed for the WOTC is required.  To do so, employers must file IRS Form 8850 and ETA Forms 9061 or 9062 with the state workforce agency within 28 days from each employees start date. 

 

Below is a summary of how the WOTC is calculated:

 

	Year(s) of employment WOTC available	Requirement for # of hours worked	Rate(%)	Per Individual
				Max qualified wages ($)	Max credit ($)
Most target groups	1st year*	Fewer than 120 hours	0%	-	-
		120 hours to 400 hours	25%	6,000	1,500
		At least 400 hours	40%	6,000	2,400
Long-term TANF recipients	1st year*	Fewer than 120 hours	0%	-	-
		120 hours to 400 hours	25%	6,000	1,500
		At least 400 hours	40%	10,000	4,000
	2nd year*	Qualified 2nd year wages	50%	10,000	5,000
Disabled veterans	1st year*	Fewer than 120 hours	0%	-	-
		120 hours to 400 hours	25%	12,000	3,000
		At least 400 hours	40%	12,000	4,800
Summer youth employees	First year: 90-day period between May 1 and Sept 15	Fewer than 120 hours	0%	-	-
		120 hours to 400 hours	25%	3,000	750
		At least 400 hours	40%	3,000	1,200
Remark:              *  From the date work began for each individual

 

Please note that tax laws expressly prohibit an employer from collecting both the tax benefits provided by the WOTC and the payroll tax exemption of the Hiring Incentives to Restore Employment Act introduced earlier this year for wages paid to the same individual.  Employers should determine the optimal tax benefits provided by each incentive and apply the applicable incentive for each qualifying employee. 

 

For details of each target group and more information

 

“12 Ways to Earn Income Tax Credits for Your Company”: Click Here

 

IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit: Click Here

 

ETA Form 9061, Individual Characteristics Form: Click Here

 

IRS Form 5884, Work Opportunity Credit: Click Here

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