Maximizing Benefits with the Work Opportunity Tax Credit
Posted by Kristin Re’ on December 30, 2024
The U.S. Bureau of Labor Statistics reports that the unemployment rate has remained historically low, ranging from 4.0% to 4.3% from May to November 2024. Considering today's hiring challenges, business owners should be aware of the Work Opportunity Tax Credit (WOTC). This credit is available to employers who hire workers from targeted groups facing significant barriers to employment. The tax credit can be as much as $2,400 for each eligible employee, with higher amounts for certain veterans and long-term family assistance recipients. It is generally limited to eligible employees who begin working for the employer before January 1, 2026.
To qualify for the WOTC, a pre-screening notice must be completed by both the job applicant and the employer on or before the day a job offer is made. This is done by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
The Targeted Groups
Employers can claim the credit only for qualified wages paid to members of targeted groups, which include:
- Qualified IV-A recipients who are members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program.
- Qualified veterans.
- Qualified ex-felons.
- Designated community residents.
- Vocational rehabilitation referrals.
- Qualified summer youth employees.
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP).
- Qualified Supplemental Security Income recipients.
- Long-term family assistance recipients.
- Qualified long-term unemployed individuals.
Details to Qualify
To qualify for the credit, several requirements must be met. For example, each employee must have completed at least 120 hours of service in their first year of employment. Additionally, the credit is not available for certain employees who are related to or who previously worked for the employer.
Different rules and credit amounts apply to certain employees. The maximum credit available for first-year wages is generally $2,400 per employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600, or $9,600 for certain veterans. For long-term family assistance recipients, there is a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit over two years of $9,000
For summer youth employees, wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum credit available for summer youth employees is $1,200 per employee.
A Win for You and Your Employees
In some cases, employers may choose not to claim the WOTC. In limited circumstances, the rules may prohibit the credit or require allocating it. However, the credit can be advantageous for most employers hiring from targeted groups, and it can result in jobs for those who need them. Contact us with questions or for more information about your situation.
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As a principal in our tax department, Kristin serves businesses and individuals. She works primarily with commercial entities in a variety of industries, including Partnerships, S-Corporations, and C-Corporations. She has also worked extensively with manufacturers and start-up companies. Kristin helps companies obtain various tax incentives to reduce tax liability and improve cash flow. Her focus is on various federal, state, and local business development incentives, including Start-Up New York, Excelsior Jobs Program, New York State Film Tax credits, and Federal Research and Development tax credits. She is involved with Firm recruitment and hiring, is a member of the Lumsden Manufacturing team, and serves as co-chair of the Firm R&D tax credit department.