Posted by Fred Lake

Breaking Down Work Opportunity Tax Credit

Breaking Down Work Opportunity Tax Credit

Finding employment can be a distressing and even an acrimonious task that many faces. It has been historically much greater struggle for people with significant barriers to employment. The work opportunity tax credit (WOTC) is a “federal incentive program” that began in 2014 to encourage businesses to hire people with barriers to employment. This program comes under the general business credit.

Under the WOTC program, it is said that a total about $1 billion in tax credits each year are claimed by the employers. The WOTC program does not limit the number of individuals that can be hired to qualify to claim the tax credit.

The legislative authority for the WOTC program, which had expired, has been extended retroactively, considering the benefits for both the employers and the economic growth by reducing the national unemployment crisis. The current Act extends the WOTC program through December 31, 2019, and includes a new target group - Qualified Long-Term Unemployed Recipient.

How does WOTC work?

The tax credit employers can claim depends on 3 criteria.

  • The target group of the individual hired
  • The wages paid to that individual in the first year of employment, and
  • The number of hours that individual worked.

There is no limit on how many individuals can be hired under this program, but the employers can claim a tax credit of up to $9,600 per individual.

  • If the individual works 120-399 hours, the employer can privilege a tax credit up to 25% of the individual's first year wages, up to the maximum tax credit.
  • If the individual works more than 400 hours, the employer can privilege a tax credit up to 40% of the individual's first year wages, up to the maximum tax credit.

The individuals in the “Long-term Temporary Assistance for Needy Families” (TANF) group can be claimed by employers who hire members for a two year period. In here the following criteria is considered.

  • If the individual works 120-399 hours in the first year, the employer can privilege a tax credit equal to 40% of first-year wages, up to the maximum tax credit.
  • If the individual works more than 400 hours in the second year, the employer may claim a tax credit equal to 50% of second-year wages, up to the maximum tax credit.

Who can be hired?

Employers can submit their certification requests to the state workforce agency for all WOTC target groups listed below.

  • Veterans (5 categories)
  • Long-term Temporary Assistance for Needy Families (TANF) Recipients
  • Supplemental Nutrition Assistance Program (Food Stamp) Recipients
  • Designated Community Residents
  • Vocational Rehabilitation Referral
  • Ex-Felons
  • Supplemental Security Income Recipients
  • Summer Youth
  • Long-Term Unemployed Recipient (new)

The term 'qualified long-term unemployment recipient' is defined as “any individual who is certified by the designated local agency as being in a period of unemployment which is not less than 27 consecutive weeks, and includes a period in which the individual was receiving unemployment compensation under State or Federal law”.

How do I apply?

Step 1- Complete page 1 of IRS Form 8850 by the day the job offer is made.
Step 2 - Complete page 2 of IRS Form 8850 after the individual is hired.
Step 3 - Complete ETA Form 9061.

The employers have to submit the completed and duly filled IRS and ETA forms to the following address.

PA Department of Labor & Industry
Tax Credit Services
651 Boas Street,
12th Floor
Harrisburg, Pa. 17121-0750

It is important that all the complete and duly filled forms must be submitted within 28 calendar days of the new employee's start date. It is better if the employer also sends the “Proof of mailing” along with the forms.

Employers can also submit applications electronically via the website,  For more information and instructions, please call 800-345-2555.

Advantages of WOTC

The employers can claim as many employees if the employers like to reduce the tax weight. On another hand, the employers have an opportunity to take part in finding a solution for the unemployment in the country and to help its economic growth. This program is fully applicant friendly and trustworthy as this is a federal incentive program that gives the employers the benefit of a tax credit. If you want to know more about WOTC, visit your nearest trusted tax professional for a more in depth discussion of the program.

Fred Lake
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