The employment landscape in the United States is extremely complex, and not everyone has the same opportunity or capacity to find work that they’re happy with. According to Trading Economics, the US unemployment rate fell to 3.5 percent in December 2022, matching the figures reported in September and July, which were the lowest since February 2020 — falling short of market estimates of 3.7 percent.
The most recent jobs report followed a sharp drop in weekly jobless claims to three-month lows and a smaller-than-expected drop in the number of job openings in November 2022, both of which indicated a still-tight and strong labor market and suggested that the US central bank would likely continue raising interest rates for some time. In December 2022, there were 717 thousand more people working, or 159.2 million people overall.
The unfortunate fact is that many people continue to face significant barriers to getting jobs. However, this is where the Work Opportunity Tax Credit (WOTC) comes into play, which is federal tax credit the government provides to companies in exchange for hiring individuals from specifically targeted groups who have encountered barriers to secure employment.
What is WOTC?
WOTC stands for Work Opportunity Tax Credit. As defined by the U.S. Department of Labor, “the Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment.”
In other words, employers can use the WOTC as a tax incentive to recruit and hire long-term unemployed candidates that are members of a WOTC target group. The WOTC program aims to support these people in becoming financially independent and reward employers who give them a chance to work and earn a living. Employers who recruit someone from a WOTC-specific population may do so in order to satisfy their business needs and receive a tax credit. Employers who hire WOTC-eligible people not only give them a chance to work but also get a grateful and loyal employee that tends stays longer. As a result, this creates a win-win situation for employers and, of course, for employees.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit, also commonly known as the WOTC tax credit, is a federal business credit generally available to private, for-profit companies that hire individuals from certain categories who have trouble finding employment.
There are 10 WOTC target groups in total. Some of those include:
- Select Veterans
- Long-term unemployed individuals
- Members of households that receive select public assistance
- SSI Recipients
How Does WOTC Work for Employers?
Employers must administer a number of moving parts that are critical to claiming and earning the tax credit. At a high-level, employers must apply for and obtain a certification from the State Workforce Agency which confirms the new recruit is in fact a member of a WOTC target group. After obtaining the required certification, the credit is calculated based on the target group, hours worked and wages earned within their first year of employment. Taxable employers can deduct the WOTC credits from their income taxes as a general business credit, while tax-exempt businesses can deduct it from payroll taxes.
How Can Employers Find Job Candidates in WOTC Targeted Groups?
Employers can connect with qualified job seekers who could be in a WOTC target group with the aid of the American Job Centers and its partner organizations and initiatives. American Job Centers (AJCs) may help companies find qualified candidates, organize job fairs, carry out skills assessments, and support employees who are changing careers.
If a job seeker is a member of a WOTC targeted group, a state workforce agency (SWA) or collaborating source agency can make that determination. In some cases, the job-ready candidate is issued this pre-certification by the state agency to utilize in their employment pursuit. By notifying potential employers of the tax credit’s availability should they hire the person, the conditional certification acts as a public record of WOTC pre-certification. It also gives businesses a way to obtain a WOTC certification for the prospective employee.
Who is Qualified for the Work Opportunity Tax Credit?
Employers can hire individuals thanks to WOTC, but only from a select pool target group of applicants that the government permits. According to the Internal Revenue Service, here are the targeted groups that are qualified to be hired for WOTC:
- Qualified IV-A recipient: This is a member of a household that is getting assistance from a state program financed by Temporary Assistance for Needy Families (TANF), Part A of Title IV of the Social Security Act (TANF).
- Qualified Veterans: Veterans who have had periods of unemployment totaling at least four weeks but fewer than six months within the 12-month period beginning on the date of employment. Veterans who were discharged or freed from active duty in the United States within one year of being eligible for benefits for a disability related to their service. Or veterans entitled to benefits for a handicap resulting from service, and have been jobless for at least six months.
- Qualified ex-felons: A candidate who was recruited within a year after either being found guilty or being released from jail for a crime.
- Designated Community Resident (DCR): A person who, as of the date of employment, is at least 18 years old, under 40, and whose primary home is in either a rural renewal county (RRC) or an empowerment zone (EZ).
- Vocational Rehabilitation Referral: An individual with a physical or mental disability who has been referred to the employer while getting or after completing treatment programs under a state plan authorized under the Rehabilitation Act of 1973.
- Qualified Summer Youth Employee: A person who lives in an empowerment zone and is at least 16 years old but under 18, and only works for the employer between May 1 and September 15.
- Qualified Supplemental Nutrition Assistance Program (SNAP) Benefits Recipient: A person who, as of the date of employment, is at least 18 years old, under 40, and a member of a family that received SNAP or other state assistance programs for at least three of the preceding five months or at least six months prior to the date of employment.
- Qualified Supplemental Security Income (SSI) Recipient: A person who received SSI benefits for any month that ended within the 60 days prior to the employment date.
- Long-Term Family Assistance Recipient: A person who, at the start of employment, was a part of a family that had received IV-A assistance for at least the previous 18 months in a row, or did receive it for at least 18 months starting after 8/5/1997 and it had not more than two years since the start of the earliest of those 18 months or had stopped receiving it because a federal or state law had limited the maximum credit amount of time they could receive it.
- Qualified Long-Term Unemployment Recipient: A person who, at the start of employment, had not worked for at least 27 weeks in a row but had also gotten unemployment benefits for some or all of that time.
The Amount of Credit
The WOTC amount varies by target group, but the bulk of the credit is comprised of 25 to 40 percent of the first $6,000 in earnings that are paid to within their first year of employment and works for the employer for at least 120 hours. They must also be certified as a member of a targeted group under the WOTC program. In this example, employers can earn a tax credit up to $2,400.
Those who work less than 400 hours or at least 120 hours for the company are paid at a rate of 25 percent. For select target groups, such as long-term unemployed and disabled veterans; the WOTC qualified wages increase from $6,000 to $24,000. Therefore, a company could get up to $9,600 in federal tax credits for such employees. As a result, the exact amount of tax credit will depend on the certification, hours worked and qualified wages earned.
How Do Employers Claim the Work Opportunity Tax Credit?
As a federal tax credit, the WOTC is constrained by the amount of Social Security taxes payable by the business or its income tax burden. Utilizing IRS Form 5884 and/or Form 3800, the employer can submit a claim for the credit as part of the yearly tax filing process. However, before the credit is earned, employers must file a Pre-Screening Notice, known as IRS Form 8850 within the employees first 28-days of employment with the state’s Workforce Agency. In response, the State Workforce Agency determines WOTC eligibility and will issue a certification to the employer for employees that meet WOTC eligibility. This is used to confirm that the employee actually belongs to one of the WOTC targeted categories and is also known as IRS Form 8850.
How Can Quentelle LLC Help?
Quentelle, a top-ranked HR service provider, offers a range of HR solutions supported by an award-winning technical platform. We deliver a streamlined solution proven to automate the administration of Work Opportunity Tax Credits, other point-of-hire credits, as well as verification of employment and unemployment insurance claims. If your company is looking to streamline WOTC, Quentelle has you covered — our WOTC solution will maximize your profitability and reduce your Federal tax liability with ease.
Here is how Quentelle LLC can help you with WOTC.
The experts at Quentelle can assist you in maximizing and streamlining your point-of-hire tax credits by utilizing our integrated technological solutions. Any sort of employer can be eligible to claim the WOTC tax credit, regardless of the number of eligible employees in their workforce. This extends to certain tax-exempt employer claims made in the US in addition to taxable employer claims. Tax-exempt employers may only use the tax credit for payroll taxes, but taxable businesses may use it to offset income taxes (incurred on the wages paid to specifically targeted group employees).
Both the company and the job seeker are needed to complete two forms throughout the hiring procedure (IRS Pre-screening Form 8850 and DOLF Form 9061). This is to be done the day before or the day the employee’s job begins. If this form completion criterion is not met, you will not be qualified to receive the WOTC tax credit.
Quentelle provides you with a range of cutting-edge solutions, including process automation for WOTC tax credits. Automating all the intricate calculations allows us to maximize your tax benefits. We submit and track the necessary paperwork to make sure all important deadlines are met.
As mentioned above, several key elements must be taken into account when deciding whether a new recruit qualifies for the Work Opportunity Tax Credit (WOTC). Among the many steps, employers must ensure that WOTC certified employees have in fact worked a minimum of 120 hours or 400 hours before earning and claiming the respective credit. Employers that use our solution, take advantage of our advanced reporting platform to automate the calculation as well as the quarterly and annual reporting of their WOTC credits.
Our platform not only helps employers to recruit people from specific target groups and categories, such as veterans, convicted felons, and food stamp beneficiaries who are eligible for the credit but also figures out the precise amount of tax credit you earn for each employee. Additionally, our platform leverages our proprietary algorithms to help you forecast your tax credits accurately and efficiently.
Verification of Employment
It goes without saying that the government and IRS have particular requirements and qualifications for who a company may hire in order to benefit maximum tax credit from the WOTC. Employers should be aware of their WOTC eligibility and ensure they hire a qualified candidate. Hiring the wrong so-called eligible employee may result in a bad investment and zero total tax credit and tax savings.
For these reasons, Quentelle will assist you in ensuring that your company hires the best applicant for each job post in order to maximize business performance and guarantee that the applicant is genuinely WOTC eligible. Quentelle offers a simplified solution that easily screens for Work Opportunity Tax Credits (WOTC) for new hires thanks to a relationship with Walton, a top supplier of employment tax credits.
By utilizing a quick, easy-to-use questionnaire during the recruiting or onboarding process at your business, Walton is able to ascertain your eligibility for tax credits and seek them on your behalf. We provide the best and most robust employment selections and Verification Processes in order to thoroughly assess a potential candidate’s employment history and determine if they fulfill the stringent requirements for WOTC employee qualification.
HR Analytics and Metrics
After making sure that the applicant is a qualified employee for the WOTC program, you want to ensure that they can operate in a way that will support the goals of the company. Employers must remain focused on selecting excellent employees instead of only focusing on WOTC-qualified candidates.
Quentelle provides an HR Analytics engine as a by-product of the multi-dimensional data collected and managed by our technological platform. We allow businesses that struggle to get access to important data in the realm of HR and workforce management in order to manage their hiring process efficiently and guarantee hiring with the best possible employee performance. Our platform makes use of artificial intelligence (AI) to gather, question, and examine vast volumes of data from applicants in order to find trends and patterns that enable businesses to hire employees that can operate efficiently — AI enables us to swiftly analyze enormous volumes of data and helps us find patterns that ordinary human intelligence is unable to recognize.
Working with a trustworthy partner is extremely crucial given how essential WOTC is to both the company and the applicants — you will need a reliable and trusted partner that can help you meet the needs of your company, retain individuals, and help you achieve the company’s goals.
Quentelle is a leading HR services provider; we are aware that any successful firm has to have strong human resources. As a result, we provide a variety of HR solutions that are supported by a cutting-edge technological foundation. We offer a range of services, such as assessing candidates for Work Opportunity Tax Credits and other point-of-hire hiring tax credits, verifying employment and income, processing unemployment benefit claims, counseling on unemployment tax, and more. We also provide a partner-focused strategy that gives our customers the greatest experience possible.
If you’re looking for the finest HR solution available, look no further than Quentelle. You will have peace of mind knowing that you’re getting the most complete and user-friendly possible solution for your HR needs. Schedule a demo today and learn more about how our world-class solutions and services can help in recruiting the most qualified WOTC workers, which will help your business achieve greater success.