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How to Benefit from the Work Opportunity Tax Credit Program (WOTC)

Did you know that around 20% of U.S. employees qualify for WOTC tax credits, but don’t even know it? If you are a business owner, this is great news for you!

The credits you can claim range from $1,200 to $9,600, depending on worker category, number of hours worked, and wages earned. If you are a business owner with employees, taking advantage of WOTC could save you thousands of dollars!

In this article, we will take a look at what WOTC is, how you can benefit from the credits for your business, how much you could actually make, and next steps on taking advantage of the program with Clarus Solutions.

 

What is the Work Opportunity Tax Credit (WOTC)?

The Work Opportunity Tax Credit is a federal tax credit available to employers who hire and retain qualified veterans and other individuals from target groups that have faced barriers in securing employment. By creating economic opportunities, this program also helps lessen the burden on other government assistance programs.

Whether or not you realize it, you’ve likely hired at least a handful of employees who are WOTC eligible. Here are a few of the included categories:

  • Unemployed & disabled veterans
  • TANF (Temporary Assistance for Needy Families)
  • SNAP (Food Stamp) recipients
  • Vocational rehabilitation referral
  • Long-term unemployed
  • Ex-felons
  • Summer youth employee (living in Empowerment Zones)
  • Supplemental security income recipients
  • Designated community residents (living in Empowerment Zones or Rural Renewal Counties)

 

How Does WOTC Benefit Your Business?

Sometimes it’s hard to know which programs for business owners are really worth your time. In this case, the proof is the cash. According to the Department of Labor, about $1 billion in tax credits are claimed each year under the WOTC program.

Taxable employers and qualified tax-exempt companies who hire someone that is a member of a WOTC target group can apply for a general business credit against their income tax.

There is a maximum tax credit that can be earned for each target group but assuming you earn $2,400 in tax credits per new hire, the total tax savings per year could really add up.

 

New Hire x Tax Credits = Tax Savings Per Year

 

Taking advantage of WOTC tax credits could help as many businesses work to cut operating costs due to COVID-19. With WOTC enabling businesses to make better use of their budgets, business volume and restaffing will become new top priorities.

Beyond the obvious financial gain, WOTC is a cause you can feel good about – making quality jobs more accessible to all American workers, and incentivizing the employer to retain employees.

 

 

The WOTC Certification and Screening Process

Before employers can claim a Work Opportunity Tax Credit, they must first receive certification from a State Workforce Agency (SWA) that the new hire meets the qualifications of one of the target groups. This is done using IRS Form 8850 and one of two forms from the Department of Labor.

The first, ETA Form 9061, or the Individual Characteristics Form (ICF), provides specific information about how an applicant answered the WOTC questionnaire. The second, ETA Form 9062, is the Conditional Certification Form for applicants who have been pre-screened for WOTC by an SWA. Both forms must accompany Form 8850 submissions.

 

Form 8850

Employers have 28 days from a qualified employee’s start date to send Form 8850, also known as the Pre-Screening Notice and Certification Request for the WOTC, to the applicable SWA. The first page, which needs to be completed by the applicant on or before the day of the job offer, outlines the conditions that someone from one of the target groups must meet to qualify for the program. The second page is intended for employers. On it, they will provide their business contact information and the applicant’s key employment-related dates.

Work Opportunity Tax Credit Questionnaire

Page one of Form 8850 is the WOTC questionnaire. It asks the applicant about any military service, participation in government assistance programs, recent unemployment, and other targeted questions.

Employees Not Eligible Under the Work Opportunity Tax Credit Program

Some exclusions apply to the list of WOTC target groups. Employers who rehire a former employee, a family member or dependent, or someone who will be a majority owner in the business may not be able to claim the tax credit for that individual (even if the individual is otherwise a member of an eligible target group).

Businesses Eligible for the Work Opportunity Tax Credit

Any business, regardless of size or industry, may be eligible to claim tax credits under the WOTC program. And because there’s no limit to the number of individuals employers can hire as part of the program, there’s also no cap on the amount of credits that they can claim.

(Source: irs.gov)

Benefits of Outsourcing WOTC

Both newly eligible businesses that haven’t yet taken advantage of tax credits and those that already have a large tax credit portfolio may benefit from outsourcing WOTC services. Third parties like Clarus Solutions can help them:

  • Identify new opportunities for which they may be eligible
  • Maintain accurate records so they can make informed decisions backed by data
  • Stay compliant with changing tax credit laws and avoid penalties
  • Report tax credit activities and meet deadlines

That said, Clarus works to take a lot of the guesswork out of the screening and certification process. Clarus helps you:

Screen your applicants

This is important to determine who qualifies as a WOTC candidate. Clarus utilizes an electronic survey that can plug into your current hiring process to make this easy.

Certify eligible employees

Those screened as WOTC eligible from Step 1 need to be certified with the State Workforce Agency. Clarus does this on your behalf – giving your state the information they need to certify the employee. In some states, it may take several months to certify the candidates – but it’s worth the wait!

Track your credits earned

Your WOTC eligible employees earn a credit based on hours worked and wages earned. If they are certified by the state, they still need to work at least 120 hours before they generate a credit. Because of this, Clarus works with you to get regular payroll feeds that show hours worked and wages earned. Clarus reports back to you on a regular basis the amount of the credit that has been earned (this is usually important for tax planning purposes).

Claim your tax credit with the IRS

Before filing your tax return each year, Clarus completes the necessary tax form for your CPA. This credit will flow through to the owners to use on their personal returns.

If you give Clarus the opportunity to administer WOTC for your organization, the Clarus team will schedule a kick-off call to talk through each of these steps in detail and make sure the process is seamless to you and your team. The Clarus VP of Client Success will be on that call to answer any questions and to make sure everything runs smoothly.

To benefit from working hand in hand, contact the team at Clarus Solutions today!