The Work Opportunity Tax Credit is a federal tax credit program for employers who hire eligible individuals from identified target groups who may have return-to-work barriers. However, it starts at the State level, so let’s take a look at understanding your state’s WOTC Program.
A Brief Overview of Ohio’s WOTC Program
Incentives for Employers
WOTC reduces an employer’s cost of doing business, requires little paperwork and applying is simple
WOTC can reduce an employer’s federal income tax liability. (General business credit against income tax.)
Credit vs. Deduction – Tax credits lower an employer’s tax bill dollar for dollar while a deduction reduces their taxable income so the value depends on the tax bracket.
Employers make the hiring decision. Employer’s receive the tax credit.
There is no limit to the number of new hires that may qualify.
Can be used in conjunction with OJT’s or other grant opportunities.
Certain tax-exempt organizations can take advantage by hiring eligible veterans (credit against the employer’s share of Social Security taxes)
Since October of 2021 WOTC has issued decisions on more than 349,771 applications.
More than 100,233 applications have been certified.
That is an opportunity for employers across Ohio to receive a tax credit of more than $240 million
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. Either form must accompany Form 8850 submissions.
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 WOTC 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 WOTC
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.
Target Groups Who Qualify
Long-Term TANF (Temporary Assistance to Needy Families) – Maximum tax credit of $9,000 (over two years)
Short-Term TANF – Maximum tax credit of $2,400
SNAP (Supplemental Nutrition Assistance Program) or Food Stamps – Maximum tax credit of $2,400
Ex-Felon – Maximum credit of $2,400
VOW – (Veteran Opportunity to Work) – Maximum credit of $9,600
Long-Term Unemployed – Maximum tax credit of $2400
SSI (Supplemental Security Income) – Maximum tax credit of $2,400
Vocational Rehabilitation or Ticket to Work – Maximum tax credit of $2,400
Designated Community Resident – Maximum tax credit of $2,400
Summer Youth Employee – Maximum tax credit of $1,200
Our WOTC Calculator can help determine the approximate amount of the credit.
Benefits of Outsourcing WOTC
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!