How Does the Work Opportunity Tax Credit Work?

Work opportunity tax credit (WOTC) is a federal tax credit program available to employers who hire individuals from a specific employee group facing significant barriers to employment.

Three factors affect the tax credit that includes the category you hired your workers from, the wages you’ve paid to the workers in their first year of employment, and their hours.

Let’s delve deeper into what work opportunity tax credit is and how it works.

What Type Of Workers Qualify For WOTC?

Suppose your company is hiring under the work opportunity tax credit. In that case, the first thing you need to determine is if a worker fits into a specific category that qualifies them for the program.

The categories of workers you can hire to qualify for the tax credit include veterans, TANF recipients, vocational rehabilitation referrals, ex-felons, SSI recipients, long-term family assistance recipients, SNAP recipients, and qualified long-term unemployment recipients.

How Can You Qualify The Worker?

To qualify the worker, you and the applicant are supposed to fill in two forms.

The applicant must first complete the IRS form 8850, which is a pre-screening form. Once you’ve made a job offer to them, the applicant must then fill out the Department of Labor form 9601, which the employer will verify.

You should then send these forms to the state workforce agency to determine the worker’s eligibility and the WOTC credit.

The Relationship between Wages and Tax Credit

Once you’ve hired the employee who’s eligible for the tax credit, the next step is to determine the amount of wages for the tax credit your employee is eligible for.

The wages must be paid in the first year of employment, so you don’t have to wait long before applying for the tax credit to the IRS.

Filing For the Work Opportunity Tax Credit

After you’ve received the letter from the state’s workforce showing that the worker qualifies, you can claim the tax credit by completing the IRS form 5884 with your business tax return. To fill this form, you have to add up all the wages, depending on the employee’s hours.

If you have any more questions about the process or think that you might be missing out on some critical information, get in touch with our WOTC services.

The Darson Group houses an experienced and professional team of WOTC experts to help you maximize your claim and manage underutilized opportunities.

Find out more about our services by getting in touch with us here.

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