Work Opportunity Tax Credit
What You Need to Know to Save Up to $2,400
Per Employee on Federal Taxes
Click here for the latest legislative information about the WOTC program!
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a tax credit offered to employers as an
incentive to hire individuals who are members of targeted groups which have traditionally
faced significant barriers to employment. The
Working Families Tax Relief Act of 2004 (Public Law 108-311) was
signed into law on October 4, 2004. This legislation extends the WOTC program and
the WtW Tax Credit for a 24-month period beginning January 1, 2004 and ending
December 31, 2005; and makes the program's authority retroactive to its
expiration date, December 31, 2003. The reauthorization applies to new hires who
begin work for an employer after December 31, 2003 and before January 1,
2006.
Can WOTC help me?
The answer is yes if you are either an employer who wishes to save money on
payroll expenses or if you are looking for a job and are a member of one the groups
targeted by the credit program.
How much is the tax credit?
Employers can receive a tax credit of up to 40% of the first $6,000 in qualified
first-year wages for a maximum credit of $2,400. Even those employers who cannot qualify
for the maximum credit can receive a partial credit of 25% of the first $6,000 in
qualified first-year wages under most circumstances.
For Summer Youth participant, the tax credit is 25% of the first $3,000 in qualified first-year wages paid during the 90-day summer working period. In order to be eligible to receive the credit for Summer Youth Participants, the employee must have a principal place of residence within an Empowerment Zone or Enterprise Community. Check with your local WOTC coordinator to identify the Empowerment Zone(s) or Enterprise Community in your area.
Is there a limit on the number of credits an employer can
claim?
There is no limit on the number of employees for whom the employer can claim the
credit.
How do I know if I am a member of a targeted group?
A job seeker is member of targeted group if s/he is a/an:
- Title IV-A Recipient - a member of a family that has received assistance from Aid to Dependent Children (AFDC) or its successor program Temporary Assistance to Needy Families (TANF) for any 9 months within the last 18 months.
- Veteran - a veteran and member of a family that received food stamps for a least 3 of the 15 months preceding the date of hire.
- Ex-Felon - a person convicted of a felony AND within the past year was either convicted or released from prison AND during the last 6 months was a member of a low-income family. (Income must be 70% or less of LOWER LIVING STANDARD INCOME LEVEL).
- High Risk Youth - a person age 18 through 24 who has a principal residence in an Empowerment Community or Enterprise Zone.
- Vocational Rehabilitation Recipient - a person with a disability who has received or is receiving vocational rehabilitation from a rehabilitation agency approved by the state or the Department of Veterans Affairs. (Drug/alcohol rehab does not qualify.)
- Summer Youth - a person a least age 16 but not 18 on the hiring date and who has a principal residence in an Empowerment Community or Enterprise Zone. (During 90-day summer working period.)
- Food Stamp Recipient - a person who is at least 18 but under age 25, AND is a member of a family that has received food stamps for the last 6 months; OR received food stamps for at least 3 of the last 5 months, AND is no longer eligible to receive them.
- SSI Recipient - a person receiving Supplemental Security Income (SSI) benefits for any month during the 60 days preceding the date of hire.
How long must the employee work in order for the employer to
claim the credit?
Under The Taxpayer Relief Act of 1997 (P.L. 105-34), the WOTC utilizes a two-tier tax
credit format. Employers can claim 25% of the qualified first-year wages up to $6,000 for
employees working, at least 120 hours but less than 400. For employees working a least 400
hours or more, the credit is calculated at the rate of 40% of the qualified first-year
wages up to $6,000. This allows a maximum credit of $2,400. For the Summer Youth target
group, the credit is calculated at a rate of 25% of the qualified first-year wages up to
$3,000. This allows a maximum credit of $750.
Can an employer claim both the Work Opportunities Tax Credit
(WOTC) and a tax credit for "On-The-Job Training" (OJT) for the same employee?
No, not for the same period of employment. However, the WOTC may be claimed for
an employee after the OJT contract has ended so long as the employer has requested WOTC
certification within 21 days of the employee’s initial hiring date. And although
wages paid to an employee during the OJT period do not qualify the employer for tax
credit, the time spent by the employee receiving OJT does qualify towards the minimum
employment requirement for the WOTC.
EXCEPTION: An employer may claim the WOTC on qualified wages paid to an eligible employee if the training assistance is paid directly to the employee and not the employer. An example would be the Veterans-OJT program under Title 38 USC.
Can an employer claim a tax credit on wages paid to an
employee who has been rehired?
The answer is no if the employee was not certified as a member of a targeted
group when s/he was first hired. However, if the employee was certified for WOTC at the
time of the original hire and the time limits for the qualified first-year wages have not
been exceeded, the employer may claim any remaining tax credits due for the rehired
employee.
The bottom line is that a person may experience a break in employment but the employer may take a credit only on wages paid during the one year period (or 90-day period for summer youth) beginning on the date employment started.
How does an employer use WOTC?
When an employer believes that a prospective employee meets the qualifications for
WOTC, the employer may choose to make a job offer to that individual or may hold off until
determining if the prospective employee is a member of a targeted group which would
qualify the employer for a credit. In either case, the employer should then take the
following simple steps:
- Complete the employer section of the IRS FORM 8850, "Work Opportunity Credit Pre-Screening Notice and Certification Request" and have the jobseeker complete the first page on or before the date of the job offer. Make certain that the applicant signs the form. Signatures must be original.
- Complete either the Department of Labor
ETA FORM 9061, "Individual Characteristics Form" if the new employee has not been conditionally certified. This form should be accompanied by documentation validating the employee’s eligibility, or
ETA FORM 9062, "Conditional Certification Form" if provided to the jobseeker by a participating agency*
- Mail the completed IRS 8850 and ETA 9062 or ETA 9061 to your state/local WOTC coordinator within 21 days after employee’s start work day. The postmark will be used to establish the date of submission. Unfortunately, the IRS has clearly stated that the employment service may not accept a faxed copy of the FORM 8850.
* Service providers such as public assistance offices, veterans programs, rehabilitation programs, parole officers, and others may provide job applicants with ETA Form 9062, "Conditional Certification," identifying them as a member of a WOTC target group. Job applicants should give this form to potential employers. A non-financial cooperation agreement must be in place before issuance of ETA Form 9062. Contact State Coordinator, Paul Williams, for assistance.
May employers use the service of a third party to handle the
paperwork associated with the credit?
While efforts have been made to minimize the paperwork associated with this program,
some employers may choose to use third parties to handle the paperwork associated with the
credit. Employers must submit IRS Form 2848--Power of Attorney to the state/local WOTC
coordinator. Without a Power of Attorney, no certification will be issued.
What kinds of documentation can be submitted in support of a
certification request?
The following are some examples of the types of documents that can be used to support a
certification request:
Age/ Birth Date: birth certificate, drivers license, school ID card with date of birth, work permit.
Family Income: pay stubs, employer contacts W-2 forms, UI documents, public assistance records, family member statements, parole officer’s name, parole officer’s statement
Vocational Rehabilitation Referral: vocational rehabilitation agency contact, social services agency contact, veterans administration contact
Ex-Felon Status: parole officer’s name, corrections institution records, court records, extracts from court transcripts
AFDC (IV-A) Recipient: AFDC Benefit History signed statement from authorized individual with specific description of number of months benefits were received, case number
Food Stamp Recipient: food stamp benefit history, signed statement from authorized individual with specific description of months benefits were received, case number
Veterans' Status: DD-214, reserve unit contacts, discharge papers
Number In Family: public assistance information, social services agency information, family member’s statements, parole officer’s statements
Residence In Empowerment Zone, Enterprise Community: driver’s license, work permit, utility bills, lease documents, voter registration card, W-4
How may I obtain further information?
To obtain forms and instructions, click on the links.IRS Form 8050 , the Work Opportunity and Welfare-to-Work Tax Credits Pre-Screening Notice and Certification Request
You may also download from http://www.irs.ustreas.gov/ or call 1-800-829-1040.
ETA Form 9061, the WOTC "Individual Characteristics Form"ETA FORM 9062, "Conditional Certification Form"
You may also download a brochure, and directories of the State and Regional Coordinators, or call the new FAX-ON-DEMAND number at 1-877-828-2050. To access this free service, you may call from a fax machine or your touch tone telephone. You can also get this form and materials by visiting www.uses.doleta.gov/tax.asp.
Whom should I call for further information?
Attn: Debra Roseburr, Coordinator
Oklahoma Employment Security Commission
Will Rogers Office Bldg., WOTC/W2W Unit
2401 N Lincoln Blvd.
Oklahoma City, OK 73152-2003
Phone: (405) 557-7128 FAX: (405)-557-7105Updated 06/28/2006