Now’s the perfect time to learn about Work Opportunity Tax Credit (WOTC) as it has been extended for another five years, making the new expiration date December 31, 2025.
What Is WOTC?
WOTC is a tax credit that applies to employers who hire employees from targeted groups. There are ten targeted groups including veterans, ex-felons, recipients of certain public benefits, Supplemental Security Income (SSI) Recipients, Long-Term Family Assistance Recipients, Qualified Long-Term Unemployment Recipients who have been unemployed for a long time, etc. The tax credit can range from $2,400 to $9,600.
Fill Out Form 8850 for Pre-Screening during Onboarding
To ensure the eligibility of an employee for WOTC, the employer will have to fill out a form for screening by the Internal Revenue Service (IRS). This form must be filled and submitted to the State Workforce Agency (SWA) no later than the 28th day the employee has started working. All relevant questions must be addressed to the SWA.
Another procedure involves filling out a Certification Request for the Work Opportunity Credit form to determine if a member of a targeted group qualifies for WOTC. Both forms are submitted to the SWA within 28 days.
Claiming WOTC – Form 5884
Form 5884 is filled out to claim the credit for qualified first- and/or second-year wages that have been paid to targeted employee groups during their working year. A minimum of 120 hours is necessary to qualify for WOTC.
- If the employee has worked between 120 – 400 hours, tax credit amounts to 25% of the employee’s first-year wages
- If the employee has worked more than 400 hours, the tax credit will amount to 40% of the employee’s first-year wages
How does WOTC benefit the employer and the employee?
For the employer, the financial benefit will be the gain from the tax credit, depending on the number of employees and the hours worked. Whether it’s 25% or 40%, multiplying it with the number of employees will reap a substantial amount of credit.
There is no cap on the number of employees you can hire and the Tax Credit can carry forward for 20 years, so there is no need to be concerned with the tax credit utilization
For the employee, there is no direct financial gain as only the employer benefits from the tax credit. However, the program is designed to give qualifying individuals a leg up by providing an incentive for the employer to hire qualifiers first. evidence
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Contact us or call us at (775)-298-4122 to request a free consultation and strategize your business.