Claiming the WOTC While Hiring in Your Business

How is your staff situation these days?

Hiring and keeping workers is still one of the greatest obstacles we find small business clients facing right now. Especially when workers tend to cut out after year-end bonuses in search of greener pastures. 

The reality is, you as a small business owner are going to have a difficult time keeping up with the demands an inflationary environment has created, especially in terms of paying as competitively as bigger corporations. You may have to find new ways to hire and even retain your employees.

But you can still do it.

When you’re on the hunt for a real A-game new hire, you often don’t have to look any further than your own team. Who is stepping up? Who is bringing lots of value? Who seems dedicated to building something with you?

And keep this in mind: You have things to offer that big companies can’t — because you’re small. Things like more extensive job training, personalized support and even relational equity all serve to keep people around and happy.

You can still attract those A-gamers to your team with what’s already in your arsenal, and you can also claim the Federal Work Opportunity Tax Credit while doing it. This specific tax credit just makes you think outside the box – have you ever considered hiring wounded veterans, or someone ready to turn their life around after incarceration? If so, you can make that next hire and get Uncle Sam to pay you for hiring. Let’s talk about it:

The TCG Accounting Team’s
“Real World” Business Strategy Note
Claiming a Tax Break AND Hiring 
“A hand up is not a hand-out.” – Clara Barton

It feels like you need every edge when looking for employees these days. Imagine if you could get credit for that chore from Uncle Sam? 

Well — it turns out you can. The federal Work Opportunity Tax Credit (WOTC) is a federal break for employers like you, in exchange for hiring people from groups “who have faced significant barriers to employment.” 

It comes as no surprise that there are a lot of conditions, of course.

Who to hire

You can claim the WOTC for wages to certain individuals who begin work on or before December 31, 2025. The catch: Your hires have to be certified by your local state workforce agency as a member of a group generally considered in need of a job break.

Those groups consist of the following: Ex-felons, recipients — or their family members – of Temporary Assistance for Needy Families (aka a “qualified IV-A recipient”), many kinds of veterans, residents of empowerment zones (EZs) or rural renewal counties, some folks referred from rehab, those whose families get supplemental nutrition assistance, some summer help, recipients of supplemental security income benefits, as well as the long-term unemployed. 

We don’t have room here for the rundown on all these groups, but here are a couple highlights:

A “qualified veteran” is a veteran who is any of the following: 

  • A member of a family receiving SNAP (food stamps) for at least a 3-month period during the 15 months ending on the hiring date
  • Unemployed for periods of time totaling at least four weeks to six months or more (doesn’t have to be consecutive) in the year ending on the hiring date
  • Entitled to compensation for a service-related disability and hired not more than a year after being discharged or released from duty
  • Entitled to compensation for a service-related disability and unemployed for a total of at least six months in the year before the hiring date.

A “qualified ex-felon” is someone you hire within a year of being convicted of a felony, or being released from prison for a felony.

A “qualified long-term unemployment recipient” has been unemployed for at least 27 consecutive weeks upon hiring and got Unemployment for some of or all that time.

(Here’s all the details on all the targeted groups from the IRS). 

Pre-screening and claiming

If you’re looking to hire, the American Job Center is one place to look for candidates. A state workforce agency or other participating agency can help you determine whether a job seeker may be in a WOTC-targeted group. A “participating agency” could include vocational rehabilitation agencies, city and county social service offices, the local Department of Corrections, or the Veterans Administration. 

You have to pre-screen your prospects and get certification from a state workforce agency that your applicant is a member of one of the above groups. You can find out more on that on the U.S. Department of Labor website.

Before you make a job offer, both you and your applicant fill out an IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.” You don’t submit this form to the IRS, but to your state workforce agency within 28 days of the employee’s start date. You want to fill in the dates on page two of the 8850 carefully.

So what do you get? 

Generally, your WOTC equals 40% of up to six grand in wages you pay to an individual in their first year of employment, and who does at least 400 hours of service for you. There is a max of $2,400, sometimes more for some groups, like veterans. You can also get a 25% rate for wages you pay to those who work 120 to 400 hours. 

Employers of all sizes can claim the WOTC, including both taxable and certain tax-exempt employers (you just file different forms — we can show you). There’s no limit to the number of individuals you can hire as part of the program and no cap on the amount of credits you can claim — but yes, it wouldn’t get a tax break without some conditions. Here are a few: 

  • Generally, your credit is capped at the amount of the business income tax liability or Social Security tax owed. 
  • You can’t claim the credit for a wage for a former employee you rehired.
  • No double-dipping on wages you use to calculate the WOTC to calculate other wage-based credits — but you may be able to claim more than one wage-based credit for the same employee. We can help you look into others. 

If you’re interested in taking advantage of the Work Opportunity Tax Credit, let us know. We’d be happy to help you look into the ways it could benefit your business.

Always here to help,