Work Opportunity Tax Credit 

Do you know what workplace opportunity tax credit is and how it applies to you? Many companies have not heard of it, but it can help you save money on taxes. 

Explore these FAQs to find answers. 

What is Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that is available to companies that hire American workers who have had tremendous difficulty getting work. 

To use the credit, employers must apply for and get verification for any new hires, and those employees must be a member of a targeted group. 

What is the Purpose of the Work Opportunity Tax Credit

The WOTC was created for two reasons, to help workers of targeted groups find jobs and to offer a tax break to companies that hire them.

Does the WOTC Benefit Employees?

The tax credit is given to the employer, not the employee, and encourages employers to hire targeted workers. The employee benefits by finding work.

Why Does the WOTC Ask for Your SSN?

To evaluate whether or not the employee is a member of a targeted group, the form for application asks for their social security number and date of birth. Some targeted groups are based on age. 

When Should the WOTC Be Completed?

Employers must ask employees to complete form 8850 before or “on the day” when they offer them the position. It may not be completed later with onboarding paperwork.

When Did the Work Opportunity Tax Credit Start?

It was started in 1996 and has been modified various times since that year. 

How to Complete a WOTC Screening?

Before offering a worker a position, provide them with form 8850 and ask their date of birth, social security number, and other questions to see if they qualify as a member of one of the targeted groups. 

Does the WOTC Reduce Wages?

Yes. For qualifying hires, the WOTC reduces the employer’s wage deduction dollar-for-dollar. 

Do Companies Get Tax Breaks for Diversity?

Along with the WOTC, businesses may qualify for other tax breaks when hiring a diverse workforce. The WOTC is to incentivize employers to hire workers from targeted groups associated with high unemployment rates.

How Much is a Work Opportunity Tax Credit Worth?

The WOTC credit is typically equal to 40% of a maximum of $6,000 of wages paid to the hired individual during their first year of employment. The worker must be a member of a targeted group and perform at least 400 hours of work for the employer. 

Learn More About WOTC

Contact Interactive Accountants today if you want to learn more about the WOTC and how it can help lighten your tax burden. We have over 100 collective years of experience and help our clients with all aspects of accounting, strategic business planning, finance, and taxes.