Posted by Tiffany Gaskin

What is a Work Opportunity Tax Credit?

What is a Work Opportunity Tax Credit?


Most countries in the world are taking the issue of diversity seriously by checking all aspects of government rules and ensuring no group in society is marginalized. This transformative plan is also currently in place in the tax sector as there is a tax credit scheme for entrepreneurs who hire individuals from marginalized groups. 


WOTC is a tax credit scheme at the Federal level available to employers who hire people from a particular group. These are people who have suffered from obstacles to gaining meaningful employment. The Work Opportunity Tax Credit works with other workforce initiatives that ensure admittance to decent jobs and encourage workplace diversity. 


There is a Consolidated Appropriation Act of 2021, which sanctions the extension of Work Opportunity Tax Credit until December 31, 2025. As of December 11, 2020, transition relief was provided for employers who had hired some people living in the empowerment zone. 


This relief was provided by extending the 28-day closing date for which employers are expected to submit their certification request. The request was for people they hired from January 1, 2018 – to December 31, 2020. 


To certify an individual as a Designated Community Resident under the 51 (d) (5) or as a competent summer youth employee under the 51 (d) (7), the person must be living within the empowerment area. 


Targeted people in qualified groups 

For any employer who is interested in the Work Opportunity Tax Credit, he must select eligible employees from any of the target groups below: 


  • Ex-Felon 

A person that is employed within a year of his conviction of a felony or when he is released from prison for the said crime. 


  • Summer Youth Employee

This person should be at least 16 years old or below 18 years at the hire date (on May 1 of any year). 


  • A qualified Veteran 

A qualified veteran must not benefit from the SNAP program and should have been unemployed for at least four weeks and not less than six months before employment. He should be a disabled person entitled to compensation. 


  • Long-term family assistant recipient 

At the time of employment, this individual belongs to a family that meets at least one of the program’s criteria. 


  • Qualified IV-A Recipient

The individual in this group is a family member getting assistance under a state plan categorized in the Social Security Act and the Temporary Assistance for Needy Families.

 

  • Supplemental Nutrition Assistance Program(SNAP) recipient

People in this group are at least 18 years old or under 40 years and should have a family member who has gotten SNAP assistance. 


  • Designated Community Resident

A DCR is someone who, at the date of hire, is 18 years old or under 40 years. He must reside either in an empowerment area, an enterprise community, or a renewal community and will continue to live in either of these areas after gainful employment. 


  • Vocational Rehabilitation Referral

This is either mentally or physically disabled and was referred to the employer while getting rehabilitative treatment or completing the treatment. 


  • Supplemental Security Income recipient 

Here is an individual who has received Supplemental Security Income benefit for a month within 60 days of being hired. 


  • Qualified long-term Unemployment Recipient 

A recipient in this group has been unemployed for nothing less than 27 weeks when he is hired and gets an unemployment reward within the unemployment phase. 


Employers must get a certification that the person is also a targeted group member before claiming the credit. The filing must be done 28 days after the eligible worker starts working in the business venture. Employers can also contact the state tax workforce agency for all questions while filing. 


After the filing process is done, the qualified tax-exempt group can claim the credit on Form 5884-C. This credit will not impact the employer’s Social Security tax liability when the business’ employment tax returns are recorded. 


The global efforts at diversifying sectors of the economy have also impacted the tax industry, hence why we have initiatives like the Work Opportunity Tax Credit. The government is committed to ensuring that marginalized communities and groups have access to jobs and will reward the employers who take them in through the WOTC program.



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Tiffany Gaskin
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