Everyone knows that it’s tough to find employees right now. It seems like every business has a “Help Wanted” sign in their front window. With the employment market so tight, the federal government has taken steps through the Work Opportunity Tax Credit (WOTC) to encourage businesses to consider employees that have historically been overlooked by employers.
The WOTC, which encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment, has been extended through the end of 2025. The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays wages to members of one of 10 targeted groups. In general, the WOTC is equal to 40% of up to $6,000 (up to $2,400 maximum) of wages paid to an individual who:
- is in their first year of employment;
- is certified as being a member of a targeted group; and
- performs at least 400 hours of services for that employer.
The ten targeted groups are:
- Temporary Assistance for Needy Families recipients
- Qualified unemployed veterans, including disabled veterans
- Formerly incarcerated individuals
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Supplemental Nutrition Assistance Program recipients
- Supplemental Security Income recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
Claiming the credit
If your business would like to claim the WOTC, the job applicant will need to be certified as being eligible for this credit. On or before the day that an offer of employment is made, the employer and the job applicant must complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit). The employer has 28 calendar days from the new employee’s start date to submit Form 8850 to the designated local agency located in the state where the employee works. Additional forms may be required by the Department of Labor to obtain certification. Following receipt of a certification from the designated local agency that the employee is a member of one of the 10 targeted groups, taxable employers file Form 5884 (Work Opportunity Credit) and tax-exempt employers file Form 5884-C (Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans) to claim the WOTC.
If you would like more information about the Work Opportunity Tax Credit and whether your business might be able to take advantage of it, please contact our office so that we can discuss your specific circumstances.