What is the work opportunity tax credit?

June 15, 2018

If you hire job applicants from designated groups, you may be eligible to claim the work opportunity tax credit and reduce your federal income tax liability.

The work opportunity tax credit is a federal income tax credit available to certain employers. The credit is an incentive for employers to hire employees in specific targeted groups in an effort to promote diversity and aid in providing access to jobs to those with significant barriers to employment.

What is the amount of the credit?

Generally, the credit is 40% of the first $6,000 of qualified first-year wages, totaling a maximum credit of $2,400 per new employee. For certain disabled qualified veterans the maximum of qualified wages is $24,000, equating to a $9,600 credit per new employee.

What are the qualifications?

There are 10 targeted groups of job applicants, consisting of the following:

  1. Long-term family assistance recipient
  2. Qualified recipient of Temporary Assistance for Needy Families (TANF)
  3. Qualified veteran
  4. Qualified ex-felon
  5. Designated community resident
  6. Vocational rehabilitation referral
  7. Summer youth employee
  8. Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipient
  9. Supplemental Security Income (SSI) recipient
  10. Qualified long-term unemployment recipient

An employee in one of the above groups must work at least 120 hours to qualify for the credit. In addition, the employee must not be the employer’s dependent or related to the employer.

If the employee works at least 120 hours but less than 400 hours, the credit is 25% of the first $6,000 of qualified first-year wages. If the employee reaches 400 or more hours of service, the credit is 40% of the first $6,000 of qualified first-year wages.

What paperwork is required?

If you employ a member of one of the designated target groups, you have two options for completing the required paperwork:

The forms must be submitted to your state workforce agency, not the U.S. Department of Labor or IRS in Washington, D.C.

What is Schenck’s experience with the work opportunity tax credit?

Schenck has extensive experience helping clients qualify for and claim the work opportunity tax credit, including expertise with the credit calculation and the IRS forms required. Last year, one of our clients received a WOTC of more than $26,000! This federal income tax credit may present a major tax savings opportunity for you and your business.

If you need assistance gathering and completing the appropriate certification paperwork for the work opportunity tax credit, we can connect you with the right resources to make the credit certification process run smoothly and ensure your employees have the correct qualifications.

For more information about the work opportunity tax credit, contact a member of Schenck’s Hospitality & Retail team at 800-236-2246.