Knowledge Base
If not, the business could be missing out on an income tax credit just for hiring new employees. Let Kevin Scott, CPA, explain.
The WOTC is a general business tax credit provided under Section 51 of the Internal Revenue Code that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes
referred to as a state workforce agency) as being a member of one of ten targeted groups.
How much of the WOTC you’ll be eligible to receive when you hire an individual from a target group may vary, but the typical amount of tax credit you can receive is between 25% to 40% of the employee’s wages in the first year of their employment.
What types of workers qualify for the WOTC?
The following is a list of the ten target groups that are eligible for the WOTC. Each target group has certain requirements that must be met for the employee to be eligible for the WOTC.
– Qualified IV-A recipients: A member of a family that receives assistance under a State plan approved under part A of Title IV of the Social Security Act for any nine months during the 18-month period ending on the hiring date.
– Veterans
– Ex-felons
– Designated community residents (DCRs)
– Summer youth employees
– Vocational rehabilitation referrals
– Supplement security income (SSI) recipients
– Supplemental Nutrition Assistant Program (SNAP) recipients
– Qualified long-term unemployment recipients
– Long-term family assistance recipients
What types of workers are ineligible for the WOTC?
Anyone who does not fall into the target group categories will not make a business eligible for the WOTC. Additionally, even if they do fall into one of the target groups, the following individuals are ineligible.
– Dependents or relatives of the business owners
– Majority owners in the company
– People who were formerly employed by your business, except for summer youth.
Tips for claiming the WOTC for your business
Keep the following tips in mind to make it easier to calculate the WOTC for your company.
– Have all employees fill out the WOTC forms as part of the onboarding process.
– Submit your WOTC paperwork to the IRS and your state’s workforce agency for each employee within 28 days of the employee’s start date
– Keep records of eligible employee wages and hours worked. Employees must work at least 120 hours to be eligible for the tax credit.
– File Form 5884 and Form 3800 to claim the tax credit as a general business credit with your regular business income tax return.
Contact your A Plus Payroll representative for more information concerning the Work Opportunity Tax Credit.