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Work Opportunity Tax Credit: A Business Growth Tool

The Work Opportunity Tax Credit (WOTC) is a voluntary federal tax credit program that encourages business owners to hire people who normally experience difficulty finding gainful employment.

Properly used, WOTC could significantly enhance your business’ growth and cash-flow planning. Here’s how to make it work for you:

  • Hire from specifically designated groups, such as military veterans, disadvantaged workers within the federal poverty level, the disabled, long-term unemployment recipients, and teens from Empowerment Zones for summer employment.
  • Hire as many WOTC eligible individuals as you want. No limits exist to the amount of tax credits you may apply for. The WOTC can generate significant tax breaks, with credits ranging from $1,200 to $9,600 per employee, depending on the target group the employee comes from and the number of hours worked per year per eligible employee.
  • Employ each WOTC staff member for a minimum of 120 hours in the first year on the job to receive the tax credit.
  • Use the tax credits to best meet your budget planning needs, as the credits are flexible. They can be applied quarterly or annually against income tax liability. Unused credits can be carried back one year or carried forward 20 years. They can also be used to offset your Alternative Minimum Tax.

The WOTC process is simple and straightforward. Job applicants must fall within certain eligibility parameters. Potential screening methods include paper forms, online platforms, or via phone with the job applicant’s participation.

Within 28 days of your new employee’s start date, submit the WOTC information to your local state workforce agency (SWA). You should also complete and submit Employment and Training Administration (ETA) Form 9061 (or Form 9062 if the employee has been conditionally certified as falling into a WOTC target group by the SWA, Vocational Rehabilitation Agency or another participating agency).

The final determination from the SWA will indicate whether the employee is certified as meeting the eligibility requirements for one of the WOTC target groups. After approval is received, Form 5884 and Form 3800 may be filed for the tax credit.

The only downside: expect to wait from six to 18 months for the certification to be processed depending on your state. The most recently available statistics indicate the states with the fastest processing times are Alabama, Colorado, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, New Jersey, New York, Ohio, Oregon, South Dakota, Tennessee, Texas, Vermont, Virginia and Washington. States with the longest lead times are Alaska, Connecticut, Maine, Montana, Nevada, Rhode Island, Oregon, Vermont, West Virginia, Wisconsin and Wyoming.

At Patrick & Robinson CPAs, we can help you with more than individual and business taxes as we pride ourselves on being our clients’ business profit consultant.

Effective use of the WOTC is one way we help our clients increase their profits. Find out more by contacting us at Office@CPAsite.com or (904) 396-5400.

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