Whitepaper | What you need to know about the Work Opportunity Tax Credit
Overview of the Work Opportunity Tax Credit program
The federal Work Opportunity Tax Credit reduces the federal income tax liability of companies that employ people considered to face certain barriers to employment. The program was designed to promote hiring of targeted groups; among them veterans, people with disabilities, and people who receive food stamps or other specific forms of government assistance. The federal program is available to all tax-paying employers in all 50 states, Puerto Rico and the U.S. Virgin Islands; meaning employers have equal access to tax credits, regardless of location. WOTC offers federal tax credits ranging from $2,400 to $9,600 per eligible employee.
Who qualifies for WOTC?
- People with disabilities
- Recipients of short-term Temporary Assistance for Needy Families
- Recipients of long-term Temporary Assistance for Needy Families (2-year credit)
- Food stamp recipients
- Supplemental Security Income (SSI) recipients
- Residents of federal Rural Renewal Counties or Empowerment Zones
- Teenagers seeking summer jobs
- Qualified long-term unemployment recipients
The newest of these target groups is the ‘long-term unemployment recipients’, which was added as an element of the Protecting Americans from Tax Hikes Act of 2015. A qualified long-term unemployment recipient is any individual who on the day before they begin working for the employer, or if earlier, the day they complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit) is in a period of unemployment that is not less than 27 weeks and includes a period in which the individual received unemployment compensation under the State or Federal Law.
WOTC long-term extension
The Work Opportunity Tax Credit has gone in and out of hiatus, as it requires congressional action to extend its legislative authority. Most recently the WOTC program entered a hiatus period during 2015 and was then retroactively extended by the PATH Act of 2015 for hires from January 1, 2015 through December 31, 2019. This long-term extension creates certainty for employers as they manage their WOTC compliance programs.
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