5 Key Things Employers Need to Know About the Work Opportunity Tax Credit

5 Key Things Employers Need to Know About the Work Opportunity Tax Credit

Are you an employer trying to get the most out of your tax benefits while supporting individuals seeking work? Then the Work Opportunity Tax Credit (WOTC) might be exactly what you need.

WOTC is a federal tax credit program created to encourage businesses to employ people from specific target groups that face barriers to employment. Employers might save up to $9,600 per employee by taking part in the WOTC program and collecting tax credits for qualified employees.

Apart from the potential tax savings, embracing the Work Opportunity Tax Credit program allows you to make a positive social impact by offering job opportunities to individuals who may face challenges in finding employment.

We will look at the particulars of the WOTC program, highlighting why it is important for employers to understand its complexity. Whether you are knowledgeable about working tax credits or are unfamiliar with the idea, we have you covered.

Eligibility for WOTC

To gain the maximum benefit from the WOTC, it’s important to understand its eligibility requirements and screening process. WOTC target groups include a diverse range of individuals facing various employment barriers. These groups include:

  • Veterans
  • Long-term unemployed individuals
  • Ex-felons
  • Designated community residents
  • Vocational rehabilitation referrals
  • Summer youth employees
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Temporary Assistance for Needy Families (TANF) recipients

Each target group has specific eligibility criteria, ensuring that tax credits are awarded to those who truly need support in their job search.
For instance, veterans must have been unemployed for at least four weeks and received government assistance within the past year to qualify.

How WOTC Works

Understanding how the WOTC works is an essential step for employers looking to maximize their working tax credits and benefits from the WOTC program. The program process starts with the WOTC application process, which involves a screening of potential employees to determine if they are eligible.

To screen an employee, employers must collect and submit the necessary documentation, which includes appropriate forms and certifications, to support their claims for tax credits.

The amount of work tax credit an employer can claim varies depending on the target group and the number of hours the eligible employee works. The credit is a percentage of the individual’s qualified wages for the first year of employment up to a specified maximum. Employers can estimate the potential savings and make informed decisions during the hiring process by understanding the credit calculation method.

To claim WOTC, employers must include the relevant information on their federal tax return to claim the credits. This involves submitting the appropriate forms and documentation. It is important to follow the Internal Revenue Service (IRS) guidelines and comply with the specified procedures to ensure a successful claim and maximize your WOTC benefits.

Benefits of WOTC

WOTC offers a range of financial benefits for employers, making it a valuable program to consider.

  • Businesses can use tax credits that immediately lower their federal tax liability by hiring qualified individuals.
  • WOTC credits can be used to reduce the cost of hiring, training, and onboarding new employees.
  • Several qualifying hires might result in significant overall tax savings, which boosts the business’s income.
  • By taking part in the WOTC program, you can access a wide variety of job candidates from different target groups, giving you access to competent people who might offer diverse perspectives and talents to your workforce.
  • Employing people who are motivated to achieve despite obstacles can boost employee loyalty and lower turnover rates.
  • Businesses should take a proactive role in encouraging social responsibility and community support while actively helping to create job opportunities for people who have trouble finding work.

The Role of HR in Implementing WOTC

HR/Talent Management is responsible for WOTC screening and identifying employees who meet the eligibility criteria for the program. This involves understanding the specific target groups and their eligibility requirements, such as veterans, long-term unemployed individuals, or recipients of certain government assistance programs.

HR professionals can collaborate with hiring managers and utilize comprehensive screening tools and processes to identify eligible candidates during the recruitment process. To effectively implement WOTC in the hiring process, HR can follow best practices, such as:

  • Providing training to HR staff and hiring managers on the WOTC program, its benefits, and the importance of working tax credits.
  • Integrating WOTC screening into existing hiring workflows and ensuring seamless communication between HR, hiring managers, and payroll departments.
  • Educating job applicants about the WOTC program and its benefits and encouraging them to provide the necessary information and documentation for eligibility determination.

Accurate tracking and documentation are vital responsibilities that an organization’s HR should handle. To successfully claim WOTC credits, HR can establish efficient processes to:

  • Gather all necessary information from eligible employees, including completed forms, certifications, and supporting documentation.
  • Maintain comprehensive records of eligible employees and their associated WOTC data, ensuring compliance with IRS guidelines.
  • Collaborate with the payroll department to accurately calculate and claim WOTC credits during tax filing.

Potential Challenges with WOTC

  • Navigating the Work Opportunity Tax Credit program comes with its fair share of potential challenges. To optimize WOTC claims, it’s essential to avoid common mistakes, such as:
  • Failing to collect and complete all the required forms and certifications from eligible employees may result in missed opportunities to claim tax credits.
  • Failing to adhere to IRS deadlines for submitting WOTC claims can lead to missed tax credit opportunities.
  • Inadequate tracking and documentation of WOTC data can lead to errors in claiming credits and potential IRS audits.

Organizations can take the following actions to remedy any problems or mistakes in WOTC claims:

  • Provide comprehensive training to HR personnel and hiring managers to ensure a clear understanding of WOTC requirements and procedures.
  • Regularly conduct internal audits to review and verify the accuracy and completeness of WOTC documentation and claims.
  • Seek assistance from tax consultants or WOTC service providers to navigate complex issues and ensure compliance with program guidelines.


If you’re eager to explore WOTC opportunities and maximize your organization’s potential savings, it’s time to take action. Reach out to Walton to learn more about how to pursue WOTC effectively and make the most of this valuable tax incentive. Don’t miss out on the chance to positively impact your bottom line and contribute to creating employment opportunities for deserving individuals.

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