The Work Opportunity Tax Credit (or WOTC) is a one-time federal tax credit given to employers who hire new employees that fall into certain categories. Aimed at encouraging the hiring of groups that have experienced categorical barriers to employment, the WOTC is given to employers on a per employee basis with no limit to the number of employees to which it can apply. In other words, an employer can receive the one-time tax credit for each of the employees that the employer hires, provided those employees are in the WOTC categories.
Tax law is difficult to understand and is often incredibly complex. As a business owner, you probably do not have the time nor the energy to spend poring over complicated regulations and tax categories like the WOTC, but you can benefit greatly from them. That is where a PEO like EinsteinHR comes in.
Businesses around the country use PEOs to cut down on human resources costs and have HR matters handled by experts in the industry. According to the National Association of Professional Employer Organizations, over 175,000 businesses with between ten and 99 employees use PEOs in this way.
Employees Covered Under The WOTC
Many different employees fall into categories targeted by the Work Opportunity Tax Credit. In order to receive the credit, an employer must submit verification Form 8850 to their local state workforce agency within the first 28 days of the applicable employeeâ€™s start at their new job. Examples of eligible employees can be found below.
Vocational Rehabilitation Referrals
This category covers employees with physical or mental disabilities who are referred by a qualified individual to the employer.
Recipients of Long-Term Family Assistance
In this case, the employee is someone who comes from a family that has been receiving certain financial aid in the 18 months prior to application. Alternatively, the family may have been declared ineligible for such benefits in the previous two years due to reaching the maximum allotment of those benefits.
Designated Community Resident
This employee lives in a designated area targeted by the WOTC. However, they must continue to live in such an area after beginning their new position.
Certain Unemployment Recipients
Under WOTC, an employer may be eligible for the tax credit if they employ a person who has been unemployed for at least 27 consecutive weeks before starting the new position. The hiree also must have received unemployment benefits for at least a chunk of that time.
These are not the only categories covered by the Work Opportunity Tax Credit. Yet even these categories contain caveats and additional qualifications in order for the employer to receive the credit. A full list of targeted groups of employees can be found on the government WOTC website.
The Importance of The WOTC to Employers
The WOTC aims at increasing the employment of groups systematically underrepresented in the workforce. This is a lofty goal, and it is also a practical one for employers. Understanding the significance of the Work Opportunity Tax Credit can lead to financial benefits for employers.
In the fiscal year 2017, for example, the government awarded over $18 million to state workforce agencies for the administration of the WOTC. With that kind of money at stake, employers should make sure that a knowledgeable and experienced PEO like EinsteinHR is at the helm of their WOTC matters.
The Protecting Americans from Tax Hikes Act of 2015 (PATH)
Currently, the WOTC has been extended to hires that take place before January 1, 2020. This is due to the passing of 2015â€™s Protecting Americans from the Tax Hikes Act that reauthorized the program. Since the end of the reauthorization is coming up at the end of the year on December 31, 2019, it is vitally important that employers consult with EinsteinHR to determine whether or not they qualify for the WOTC.
EinsteinHR was founded by members of the HR outsourcing industry with decades of experience under their collective belts. We understand state and federal labor regulations like the WOTC and can help employers get the tax credits for which they qualify.
In addition to positive gains like the WOTC that can be made through understanding federal labor laws, EinsteinHR also works to ensure compliance with regulations in order to lower the risk of employer lawsuits. By avoiding unnecessary fines and court costs and optimizing tax returns through legal initiatives like the WOTC, we can make a business ownerâ€™s cost-benefit spreadsheet smile.
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EinsteinHR is dedicated to customer satisfaction. That is one reason that we offer a FREE quote on our services to potential clients. If you are a business owner seeking to take advantage of the WOTC, or if you need help outsourcing any of your human resources needs, look no farther than EinsteinHR.