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The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire people from certain targeted groups. The targeted groups include veterans and ex-felons - people who consistently face employment barriers.
Employers can claim the tax credit for wages paid to these individuals during their first year of employment, if they are hired before December 31, 2020, and work at least 120 hours the first year. The employer will need to obtain certification from a state workforce agency that an individual is a member of a targeted group. If the employer doesn’t obtain the certification prior to the individual’s start date, they must file Form 8850 with the state workforce agency within 28 days of the hire date.
The credit can be calculated as:
- 25% of the wages paid to an employee who worked 120-400 hours, or
- 40% for an employee who worked 400+ hours.
The amounts are subject to maximums which are dependent upon the employee’s targeted group classification.
The WOTC was enacted in 2007 and was set to expire in 2019. It was extended for another year, allowing employers to claim it for employees hired on or after December 31, 2020.
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National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.
