The Work Opportunity Tax Credit (WOTC) is a tax credit available to employers who hire marginalized workers belonging to a particular target group, facing significant barriers in their quest to find employment.
When you hire individuals eligible for WOTC at your business, you can unlock tax credit ranging to nearly $9,600 per employee. Here’s all you need to know about WOTC tax credit and how it benefits your business.
More About The WOTC Program
The Work Opportunity Tax Credit was first introduced on October 1st, 1996, under the Small Business Job Protection Act. The program allowed for-profit employers to gain tax credit against their income tax liabilities for every employee they hired from a list of target groups.
When employing individuals from the list such as veterans or ex-felons, companies are allowed to earn a tax credit worth thousands of dollars, which reduces the amount they owe to the Internal Revenue Service (IRS). The program has since been in full swing, with reports of $1 billion being collected in tax credits through WOTC annually.
How To Apply For WOTC Status
In order to avail the tax credits after hiring employees from the specified group, employers need to verify they are eligible and file paperwork with the IRS.
Firstly, employers need to file Form 8850 for their workers. Remember to submit the document within 28 days of your employee’s start date. Once the IRS verifies the status, employers need to file Form 3800 to claim the tax credit. However, if you’re a tax-exempt employer, you need to use Form 5884-C to receive credit against your social security tax.
The tax credit incentives are available for both full-time and part-time employees and are allocated based on work hours and wages earned during the shift. The highest amount of tax credit you can receive per employee currently rests on $9,600 and can go as low as $2,000. To avail the highest tax credit incentive, you would have to hire a qualifying disabled veteran who has been out of work for six months before their start date.
Overlooking screening processes and gaps in filing the right paperwork can lead to the IRS holding back on granting the right tax credits to your business and hurt your finances, which is why we recommend getting in touch with our tax credit specialists to help you with getting verification and filing the right forms. Contact us today at The Darson Group for more information on our services.