Work opportunity tax credit provides help to employers

The Work Opportunity Tax Credit (WOTC) may help employers in today's tough job market and economy. Many business owners are hiring and should be aware that the WOTC is available to employers that hire workers from targeted groups who face significant barriers to employment. The credit is worth as much as $2,400 for each eligible employee ($4,800, $5,600, and $9,600 for certain veterans and $9,000 for “long-term family assistance recipients”). It’s generally limited to eligible employees who begin work for the employer before January 1, 2026.

The IRS recently issued some updated information on the pre-screening and certification processes. To satisfy a requirement to pre-screen a job applicant, a pre-screening notice must be completed by the job applicant and the employer on or before the day a job offer is made. This is done by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.

Which new hires qualify?

An employer is eligible for the credit only for qualified wages paid to targeted group members. These groups are:

1. Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
2. Qualified veterans
3. Qualified ex-felons
4. Designated community residents
5. Vocational rehabilitation referrals
6. Qualified summer youth employees
7. Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP)
8. Qualified Supplemental Security Income recipients
9. Long-term family assistance recipients
10. Long-term unemployed individuals

Other rules and requirements

There are a number of requirements to qualify for the credit. For example, there’s a minimum requirement that each employee must have completed at least 120 hours of service for the employer. Also, the credit isn’t available for certain employees who are related to or who previously worked for the employer.

There are different rules and credit amounts for certain employees. The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600, or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit of $9,000 over two years.

For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.

A beneficial credit

In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, the credit can be beneficial for most employers hiring from targeted groups.

If you have any questions about the credit, contact Shawn Sullivan using the information below.