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WOTC Explained

Are you taking advantage of this common tax deduction?
Kwantek Team

For high-turnover industries focused on hiring hourly employees, it’s common to hire employees that would qualify for Work Opportunity Tax Credits (WOTC). For companies with significant annual hiring volume, using these credits can help deduct tens of thousands of dollars from taxable income. Given this, let’s dive in to how to maximize WOTC for your business! 

For high-turnover industries focused on hiring hourly employees, it’s common to hire employees that would qualify for Work Opportunity Tax Credits (WOTC). For companies with significant annual hiring volume, using these credits can help deduct tens of thousands of dollars from taxable income. Given this, let’s dive in to how to maximize WOTC for your business!

What is the Work Opportunity Tax Credit?

WOTC is a Federal Tax Credit available to most employers who hire and retain veterans and individuals from other groups with barriers to employment. Employers are eligible to reduce their federal income tax liability by an average of $1,000 per employee, with a credit potential up to $9,600 for some employees. 

WOTC Credit Amounts by Target Group

The tax credit you can claim depends on a combination of:

  • Target group of the individual hired
  • Wages paid in the first year of employment (or second year, in the case of TANF)
  • Number of hours worked-eligible employees must work a minimum of 120 hours for an employer to benefit from the credit

 

Non-Veteran WOTC Target Groups

Worked at least 120 hours but less than 400 hours

Worked at least 400 hours

TANF Recipients
(Short-Term Employment)

Up to $1,500
(25% of $6,000 of first-year wages)

Up to $2,400
(40% of $6,000 of first-year wages)

TANF Recipients
(Long-Term Employment)

N/A

Up to $9,000 over 2 years
(40% of $10,000 of first-year wages and 50% of $10,000 of second-year wages)

SNAP Food Recipients

Up to $1,500
(25% of $6,000 of first-year wages)

Up to $2,400
(40% of $6,000 of first-year wages)

Ex-Felon

Up to $1,500
(25% of $6,000 of first-year wages)

Up to $2,400
(40% of $6,000 of first-year wages)

SSI Recipients

Up to $1,500
(25% of $6,000 of first-year wages)

Up to $2,400
(40% of $6,000 of first-year wages)

 

 

Veteran WOTC Target Groups

Worked at least 120 hours but less than 400 hours

Worked at least 400 hours

Disabled & Hired One Year After Leaving Service

Up to $3,000
(25% of $12,000 of first-year wages)

Up to $4,800
(40% of $12,000 of first-year wages)

Disabled & Unemployed at least 6 months

Up to $6,000
(25% of $24,000 of first-year wages)

Up to $9,600
(40% of $24,000 of first-year wages)

Unemployed at least 4 weeks

Up to $1,500
(25% of $6,000 of first-year wages)

Up to $2,400
(40% of $6,000 of first-year wages)

Unemployed at least 4 months

Up to $3,500
(25% of $14,000 of first-year wages)

Up to $5,600
(40% of $14,000 of first-year wages)

 

How do I obtain my WOTC credits?

To benefit from this tax incentive, applications for each WOTC-eligible employee must be submitted to the state in which they work for review and approval. There are two forms you must complete for each hire:

  • Form 8850
  • Form 9061

In addition to completing these forms, you may need to provide supporting documents to prove the employee’s eligibility. Once the employee is approved by the state, you can start gaining credits based on their hours and wages.

Using Kwantek’s applicant tracking system, WOTC filing is completely automated and submitted on your behalf. This helps you avoid drowning in paperwork and hourly fees with your tax accountant.

To learn more about how Kwantek can help you deduct thousands of dollars of taxable income, click here to schedule a demo. 

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