The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses who hire and retain qualified employees from various target groups who may typically face obstacles in securing employment. By creating new economic opportunities, this program also helps reduce the overall burden on other government assistance programs.
The WOTC has two distinct purposes:
Promote the hiring of those individuals who may qualify as a member of a target group.
Provide a federal tax credit of up to $9,600 for employers who hire these individuals.
Yet the process may not be as easy as it may seem and many companies find they have questions related to the overall process, what paperwork to complete, and various deadlines. To help you understand WOTC, this article covers all of these details and more.
WOTC screening helps companies identify any candidates who may be eligible for this program during the hiring process. As a result, they can maximize the related tax benefits.
Who is eligible can be confusing, since some of the guidelines may be hard to understand. Overall, eligibility is based on finding and hiring employees from certain groups, including veterans, individuals receiving government assistance, ex-felons, and long-term unemployed workers. Then, once they’re hired, the business must verify each candidate’s status within 28 days of their start date.
WOTC screening requires employers to collect the right information from their job applicants using forms such as IRS Form 8850 and ETA Form 9061. These forms are designed to gather and report important details on the candidate’s background and other criteria. This information is then submitted to the right state workforce agency for final certification.
When it comes to process, WOTC screening usually follows four steps:
1. Initial screening during the hiring process
2. Completing the right IRS forms
3. Submitting information to the correct state workforce agencies for certification
4. Maintaining detailed records to claim the tax credit on federal tax returns
WOTC screening offers employers more than just tax savings – it provides a pathway to strengthen their workforce while contributing to economic and social progress. By hiring individuals from various targeted groups, businesses can unlock financial incentives, promote inclusivity, and make a positive impact on their communities.
Let’s take a closer look at these benefits.
#1 Financial advantages for employers
WOTC screening allows employers to claim significant tax credits, ranging from $1,200 to $9,600 per eligible hire, depending on the target group and hours worked. These credits help offset hiring costs and make it financially advantageous to employ individuals from underrepresented or disadvantaged groups. To look at it another way: WOTC helps companies improve their bottom line while supporting workforce development initiatives.
#2 Economic impact on communities
The WOTC program encourages the hiring of individuals who face employment barriers, reducing unemployment rates and dependency on public assistance in communities. This infusion of opportunity and income contributes to local economic growth since newly hired workers can reinvest their salary earnings into the community. Over time, the program helps build stronger, more sustainable local communities and economies.
#3 Inclusivity and workplace diversity
By prioritizing the hiring of veterans, individuals with disabilities, and other under-represented groups, WOTC screening promotes a more diverse and inclusive workforce. Increasing diversity helps bring new perspectives, fosters innovation and collaboration, and enhances organizational culture. This type of commitment to inclusivity not only strengthens the overall business but a more equitable job market.
#4 Challenges and Considerations in WOTC Screening
While WOTC screening offers significant benefits, employers must navigate certain challenges and considerations to ensure a smooth and successful implementation of the program.
#5 Common misunderstandings
Many employers mistakenly believe that WOTC is only beneficial for large businesses or that the screening process is overly complex. Misunderstandings about eligibility criteria, deadlines, and certification requirements can lead to missed opportunities for tax credits. Educating employers about the program’s simplicity and broad applicability is essential to maximizing its benefits.
#6 Compliance and Regulatory Issues
Strict deadlines, such as the 28-day window for submitting forms to state workforce agencies, can pose compliance challenges for employers. Additionally, maintaining accurate records and ensuring proper documentation for audits requires consistent oversight. Failure to meet regulatory requirements can result in denied tax credits or penalties.
#7 Strategies to Overcome Challenges
Employers can overcome WOTC challenges by implementing automated screening tools, like HR Cloud’s platform, to simplify the process and ensure compliance. Training HR teams on eligibility and certification requirements can reduce errors and misunderstandings. Partnering with experts or third-party providers can also help navigate regulatory complexities and maximize tax credit opportunities.
By addressing these challenges with the right strategies and tools, employers can fully unlock the potential of WOTC, positioning themselves to adapt to future developments and opportunities within the program.
As WOTC continues to evolve, changes in legislation, advancements in technology, and shifting workforce dynamics will shape its future, creating new opportunities for both employers and job seekers.
1) Potential Changes in Legislation
As workforce development programs evolve, WOTC legislation may expand to include new target groups or adjust eligibility criteria to address emerging employment challenges. Potential changes could also simplify the certification process, making it more accessible for businesses of all sizes. Employers should stay informed about legislative updates to fully leverage the program’s benefits.
2) The Role of Technology in Screening
Advancements in technology, such as AI-powered tools and automated workflows, are revolutionizing WOTC screening. Platforms like HR Cloud simplify eligibility checks, streamline form submissions, and ensure compliance with regulatory deadlines. As technology continues to evolve, these tools will make WOTC screening faster, more accurate, and more efficient for employers.
3) Predictions for Employers and Job Seekers
For employers, WOTC will remain a valuable tool for reducing hiring costs and diversifying their workforce, especially as automation makes the process more seamless. For job seekers, the program will likely open up more opportunities, particularly for individuals in disadvantaged groups. Together, these trends will create a more inclusive job market and help businesses meet their staffing and financial goals.
By staying proactive and embracing innovations in WOTC screening, employers can maximize the program’s benefits while contributing to a more inclusive and dynamic workforce, setting the stage for long-term success.
The Work Opportunity Tax Credit is more than just a tax incentive – it’s a bridge between businesses and talented individuals who may otherwise face barriers to employment. By embracing WOTC screening, companies can align their hiring practices with larger social and economic goals, fostering a more inclusive workforce while benefiting from financial incentives.
As technology simplifies the WOTC process and potential legislative changes broaden its scope, this program will continue to be a powerful tool for employers. Whether you’re looking to reduce costs, enhance diversity, or make a meaningful impact on your community, WOTC screening offers an opportunity to turn hiring into a force for positive change.
1. What types of employees can benefit from WOTC?
Employees in specific target groups – veterans, individuals on government assistance, ex-felons, and long-term unemployed workers – can benefit from WOTC by increasing their options for employment.
2. How do employers apply for WOTC screening?
Hiring companies can apply for WOTC screening by submitting IRS Form 8850 and ETA Form 9061 to their state workforce agency within 28 days of the employee’s start date.
3. What are the potential financial incentives for participating in WOTC?
Employers can earn tax credits ranging from $1,200 to $9,600 per eligible employee, depending on the target group and the number of hours worked in the first year of employment.
Author:
This article is written by a marketing team member at HR Cloud. HR Cloud is a leading provider of proven HR solutions, including recruiting, onboarding, employee communications & engagement, and rewards & recognition. Our user-friendly software increases employee productivity, delivers time and cost savings, and minimizes compliance risk.