As part of National Small Business Week, the IRS highlighted to business owners that although we are in a tight job market, there are special tax credits that can help employers hire workers.
What is the Work Opportunity Tax Credit?
The WOTC is a federal tax credit available to employers for hiring long-term unemployment recipients and other groups of workers that face significant barriers to employment. WOTC incentivizes workplace diversity and access to good jobs for American workers.
The pandemic has left millions of Americans out of work at one time or another since the start, in 2020. One of the targeted groups that is included in the WOTC is long-term unemployment recipients that have been unemployed for at least 27 consecutive weeks and received state or federal unemployment benefits during that time.
Other grounds included are veterans, recipients of various types of public assistance, and:
- Temporary Assistance for Needy Families (TANF) recipients,
- 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 (SNAP) recipients,
- Supplemental Security Income (SSI) recipients,
- Long-term family assistance recipients and
- Long-term unemployment recipients.
How do you qualify?
To qualify for the WOTC credit, an employer must submit IRS Form 8850, Pre-screening Notice and Certification Request for the WOTC, to their state workforce agency within 28 days after the eligible work beings working. Form 8850 should not be submitted to the IRS.
Claiming the WOTC
Eligible businesses will claim the WOTC on their federal income tax return. The credit is based on wages paid to eligible workers in their first year of employment. The WOTC is a one-time credit for each new hire and is not available for employees who are rehired. Form 5884, Work Opportunity Credit, is used to figure out the amount of the credit and it will then be claimed on Form 3800, General Business Credit.
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