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Posted by Donna J Ward, CPA

Small Business Credits: Work Opportunity Tax Credit

Small Business Credits: Work Opportunity Tax Credit

The IRS often creates deductions and credits that will encourage certain social policies. The Work Opportunity Tax Credit is a good example of this phenomenon. This credit is specifically targeted toward businesses and their hiring practices. It is only available to those businesses in the private sector, and it can be very beneficial for some businesses, particularly those that are just starting out. Every business is different, and you must meet certain criteria to qualify for this credit. Speak with the experienced tax professionals at Ward & Associates CPAs, LLC to determine if your business will qualify for this credit and how you can use it.

What is the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) is available to private businesses who hire certain types of individuals. It can also be used by certain tax-exempt entities. The legislature has determined that specific individuals face barriers to hiring, and therefore want to encourage employers to hire these people to help break those barriers down. The employer takes a certain amount of credit for each qualifying hire that he or she makes. It is a onetime tax credit that can only be used once per hire, but can sometimes be extended over two years.

Which Types of Employees Qualify for the WOTC?

Only certain types of employees will grant an employer the WOTC. Under the WOTC, these people are referred to as “target groups.” These groups include:

·      Qualified Veterans, including disabled veterans and unemployed veterans

·      Qualified Designated Community Residents (those who live in Empowerment Zones or Rural Renewal Counties)

·      Qualified Ex-Felons

·      Qualified Vocational Rehabilitation Recipients

·      Qualified Supplemental Security Income Recipients

·      Qualified Supplemental Nutritional Assistance Program (SNAP) Recipients (those who qualify for Food Stamps)

·      Qualified Recipients of Temporary Assistance to Needy Families (TANF)

·      Certain youths for summer positions

The credit is designed to encourage employers to hire workers that would otherwise be on assistance or who have trouble getting jobs. Hopefully, the program will eventually cost taxpayers less in the long run because those who have jobs will not need government assistance any longer. Every year, employers have been able to claim over $1 billion in tax credits under this program.

The Dollars and Cents of the Work Opportunity Tax Credit

Each employee from a targeted group could give employers a varying degree of tax credits. The credit will vary depending on the type of target group and the number of hours that the employee works. The maximum credit per employee is $9,600 (for disabled veterans who have been unemployed for at least six months) and the minimum credit is $1,200 (for summer youth) There are no limits to how many credits like these an employer can have, and applying for the credit is relatively easy.

The credit must be claimed in the first year of the employee’s employment. If the employee works at least 120 hours throughout the year, then the employer can claim a tax credit of 25 percent of the employee’s wages up to the maximum credit amount. If the employee works at least 400 hours, this percentage increased to 40 percent.

There are special benefits for those who are considered in the TANF group. The credit can include up to 40 percent of the employee’s wages up to the maximum dollar amount as long as the employee works at least 400 hours. Then, in the second year, the employer can claim an additional 50 percent of the employee’s wages up to the maximum tax credit amount.

Applying for the WOTC is Easy!

Your eligible employee must fill out Form 8850 when you make an offer of employment. If the individual has been conditionally certified by the State Workforce Agency in Denver, CO, Vocational Rehabilitation agency, or another participating agency, then the employer should fill out ETA Form 9061. The State Workforce Agency for Colorado is located in Denver under the umbrella of the Colorado Department of Labor and Employment.

Once both of these forms are completed, you must send them to the Colorado Department of Labor and Employment in Denver within 28 days of the employee’s start date. Ward & Associates can help you fill out these forms and get you well on your way to receiving this credit. Once the Colorado Department of Labor and Employment certifies the employee, then Ward & Associates can also help you actually file for the credit with the IRS.


Credits like these can really help large and small businesses alike. Take advantage of credits like these by getting all of the facts from a skilled tax preparer. Find out more about Ward & Associates by clicking on our profile link below or use the Contact button to get started with filing for your Work Opportunity Tax Credit.

Donna J Ward, CPA
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