In the ever-evolving landscape of tax credits and incentives, one program stands out for its dual impact on both businesses and the community: the Work Opportunity Tax Credit (WOTC). This tax program is designed to encourage employers to hire and retain individuals from certain demographic groups who face significant barriers to employment. By participating in the WOTC program, businesses not only contribute to workforce diversity but also gain the opportunity for substantial tax benefits.

Understanding the Potential of WOTC

On average, 20% of employees could be eligible for WOTC. By participating in the program, businesses could receive a tax credit ranging from $1,200 to $9,600 per employee, depending on the employee’s targeted group and length of employment. According to the Department of Labor, employers who screen for WOTC claim about $1 billion in tax credits each year.

WOTC is open to U.S. businesses of all sizes, and there is no cap on the amount of credits a business can claim. Eligibility for the credit extends to a diverse range of individuals, including:

• Qualified U.S. Veterans
• Qualified Food Stamp Recipients
• Temporary Assistance for Needy Families (TANF) Recipients
• Designated Community Residents
• Vocational Rehabilitation Referrals
• Qualified Summer Youth Employees
• Qualified Supplemental Security Income (SSI) Recipients
• Long-term Unemployment or Family Assistance Recipients
• Supplemental Nutrition Assistance Program (SNAP) Recipients
• Qualified Ex-felons, Pardoned, Paroled, or Work-Released Individuals

What employees are not eligible for WOTC?
It’s important to note that not all employees qualify for WOTC. Businesses can’t claim WOTC for an employee who:

• is a majority owner (more than 50% ownership);
• is related to a majority owner;
• previously worked for the company; or
• doesn’t work at least 120 hours.

Tax-Exempt Employers and WOTC

Qualified tax-exempt employers under 501(c) of the Internal Revenue Code may claim WOTC for hiring and employing first-time qualified veterans. For these employers, the credit is applied against the employer’s share of payroll tax.

How does the process work?

1. Employers must screen applicants during the hiring process while collecting certain required documentation.
2. Once the applicant is hired, the employer must then apply for a certification from the State Workforce Agency (SWA) verifying their new hire is a member of a targeted group (listed above).
3. After the employee is certified by the SWA, the employer then must track hours and wages worked, ensuring the employee meets the required hour-based milestones.
4. Finally, the tax credit is included on the employer’s annual income tax return as a credit towards income taxes.

How much time is left to file?

Time is of the essence. Congress has currently authorized WOTC to continue through December 31, 2025. Meaning that businesses can claim WOTC for tax years 2024 and 2025.

Navigating the Administrative Hurdles

Despite the significant benefits, many businesses hesitate to participate in the WOTC program due to the administrative burden. The process can be tedious and put a strain on hiring managers. However, being knowledgeable about the intricacies of the program and implementing a streamlined process can make this a rewarding benefit for both businesses and their employees.

Learn More Today

At Sagemont Advisors, we are excited to help our clients navigate the complexities of the WOTC program. We believe in making this process simple and seamless, allowing businesses to focus on their core operations while reaping the benefits of this valuable tax credit. If you do not currently have a WOTC program set up or hope to dramatically improve an existing WOTC process, contact one of our professionals today at: wotc@sagemontadvisors.com.

By investing in WOTC, you not only enhance your bottom-line but also contribute to the broader goal of reducing employment barriers for targeted demographic groups. Don’t miss out on this opportunity to support your business and community simultaneously.

Sign Up for Our WOTC Webinar on June 5th