WOTC Extended Until 2025

Summer is here, and for some industries, this signals the continuing efforts of hiring for a busy season ahead. However, given the ongoing labor shortages, especially in food service and hospitality, finding temporary employees can be challenging. The Work Opportunity Tax Credit (WOTC) offers a solution by offsetting funding issues while also aiding individuals who have faced employment barriers. It was recently extended until 2025.

What is the Work Opportunity Tax Credit (WOTC)?

WOTC is a potentially lucrative tax credit. It is available to any employer who hires individuals from targeted groups who have consistently faced significant barriers to employment.

People like qualified veterans, SNAP (Supplemental Nutrition Assistance Program) recipients, reentering ex-felons, qualified long-term unemployment recipients, and many more are eligible for WOTC. It provides employers with a financial benefit while also creating opportunities for individuals who may otherwise struggle to find employment.

According to the U.S. Department of Labor, about $1 billion in tax credits are claimed each year under the WOTC program—and it is estimated that millions of dollars remain unclaimed each year simply because employers aren’t aware of the benefit.

How Does WOTC Work?

To qualify for the Work Opportunity Tax Credit, employees need to meet specific criteria and work a minimum number of hours. The longer they remain on your payroll, the higher the potential WOTC credit. Here’s a breakdown of the requirements:

Employees become eligible for WOTC once they’ve worked a minimum of 120 hours. If an employee works 40 hours per week, this requirement is fulfilled in just three weeks. The tax credit percentage is calculated based on a percentage of the employee’s wages. Initially, at the 120-hour mark, the credit is set at 25% of their wages. However, after the employee has worked 400 hours, the WOTC credit percentage increases to 40%.

The maximum tax credits available vary depending on factors such as the worker category, number of hours worked, and wages earned. The range for maximum tax credits is from $2,400 to $9,600.

To claim WOTC, employers can apply for the tax credit for all new hires who meet the criteria. It is crucial to file for the tax credit at the time of hiring an eligible individual, as retroactive claims are not possible. Employers must complete the necessary forms and adhere to specific deadlines to successfully claim WOTC.

Understanding these requirements and taking the necessary steps to apply for WOTC can provide businesses with valuable tax credits while supporting individuals who have faced barriers to employment.

How to Apply for WOTC

Applying for WOTC involves meeting important deadlines within the first month of the new employee’s first day of work to claim the tax credit. The company needs to submit Form 8850 along with ETA Form 9061 or ETA Form 9062 no later than 28 days after the new hire’s start date. These forms are essential for successfully applying for and receiving the Work Opportunity Tax Credit.

Both for-profit and nonprofit employers are eligible for the Work Opportunity Tax Credit. The distinction lies in how the credits are applied and the worker categories available. Private-sector employers have access to all categories of workers, and any earned credits are applied to their federal liability. (Taxable employers may carry the current year’s unused WOTC back one year and then forward up to 20 years.)

On the other hand, tax-exempt employers can participate in the program by hiring veterans and can utilize the credit against their share of Social Security tax. Notably, veteran credits are among the higher-value credits, making it a fantastic opportunity for nonprofits to benefit from WOTC.

Many states offer their own WOTC-equivalent opportunities. The amount of credit and the type of tax they offset varies by state. Contact your tax professional for more information concerning state credits.

Next Steps

Wilke CPAs & Advisors is ready to help small business owners maximize their WOTC benefits. Contact us to talk with a tax expert, ensuring you don’t leave any money on the table.