If you’re a business owner or executive looking for ways to improve your company’s cash flow, the Work Opportunity Tax Credit (WOTC) could be an effective solution. Rockerbox’s team of experienced WOTC advisors make it easy for CFOs, CEOs and small business owners to take advantage of the WOTC program in as little as 10 minutes per month. Here’s what employers need to know about how the Work Opportunity Tax Credit can help your business:
What is the Work Opportunity Tax Credit?
The federal Work Opportunity Tax Credit, known as WOTC, is a tax credit of $1,200 to $9,600 for employers who hire workers from certain groups of applicants. These WOTC target groups consist of job seekers who typically deal with barriers to employment. This federal tax credit has been authorized through December 31, 2025.
How Does the Work Opportunity Tax Credit Work?
Employers who hire workers in WOTC target groups apply for a certification from their State Workforce Agency (SWA) to prove that the employee is a member of a targeted group. Once the SWA has certified the new hire’s eligibility, the employer can claim the federal tax credit after the employee has worked at least 120 hours. After that, the employer can claim a percentage of their pay until the tax credit has been maximized.
How Can Businesses Benefit from the Work Opportunity Tax Credit?
The WOTC program gives companies a chance to leverage tax incentives against shrinking margins. These tax credits can offset the costs of recruiting and on-boarding new employees, such as background checks, drug screens, job board posting fees and more.
Additionally, each WOTC-qualified employee can increase profitability by as much as 80% when compared with a non-WOTC-qualified employee. Hiring from the 9 WOTC target groups not only expands your pool of potential new hires, but the WOTC credit can also make hiring entry-level and unemployed workers more profitable. And, bringing new employees into your industry helps build loyalty and improve retention rates.
What is the Screening Process for the Work Opportunity Tax Credit?
Work Opportunity Tax Credit screening consists of an initial WOTC questionnaire completed by the job applicant. This WOTC survey is on page one of IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit”. The WOTC questionnaire form must be completed on or before the date the job is offered. Then, the employer must submit Form 8850 along with Form 9061 or 9062 to their SWA or other designated local agency within 28 days of the eligible employee’s start date. The SWA will then certify or deny the employee’s WOTC eligibility.
Qualifying for the Work Opportunity Tax Credit
Which Businesses are Eligible for WOTC?
Both taxable and some tax-exempt employers of all sizes located in the U.S. and specific U.S. territories may be eligible for the WOTC tax credit program.
Eligible Employees under WOTC
The WOTC target groups and their maximum tax credits include:
- Qualified Veterans ($2,400-$9,600 max credit)
- TANF Recipients ($2,400-$9,000 max credit)
- SNAP Recipients ($2,400 max credit)
- Designated Community Residents living in an Empowerment Zone ($2,400 max credit)
- Vocational Rehabilitation Referred ($2,400 max credit)
- Ex-Felons ($2,400 max credit)
- Summer Youth Employees living in an Empowerment Zone ($1,300 max credit)
- Supplemental Security Income Recipients ($2,400 max credit)
- Qualified Long-Term Unemployment Recipients ($2,400 max credit)
Employees who are not Eligible under WOTC
There are a few exclusions, such as members of WOTC target groups who are former employees that have been rehired, family members or dependents of the business owners, or any person who will have majority ownership of the business.
How Does an Employer Claim the Work Opportunity Tax Credit?
Taxable employers claim the WOTC on their federal general business income taxes. Tax-exempt employers claim the WOTC against payroll taxes.
How Rockerbox Helps Businesses with WOTC Screening and Data Collection
Maximize Tax Credits
If your business is in the staffing, trucking, hospitality, restaurant, food service, grocery, retail or healthcare industry, chances are you frequently hire from the 9 WOTC-eligible target groups. In fact, these industries often have 20-25% eligibility among their new hires. With an average tax credit of about $2,100, that can add up to substantial tax savings for your business.
Increase Screening & Qualifying Percentages
So why don’t more employers take advantage of these tax breaks? At Rockerbox, we’ve heard from numerous business owners that they don’t see the value in the WOTC tax credit screening because it’s too time-consuming. In some cases, they’ve paid someone in the past to implement a WOTC program and didn’t get enough return on the investment. By partnering with Rockerbox, our clients increase their screening percentage and qualifying percentage without spending hours processing paperwork each month.
Save Time & Stay Compliant
Rockerbox can help you maximize your WOTC benefits in as little as 10 minutes per month! Our experienced business tax advisors use proven processes to help our clients capture 30-40% more tax credits and improve cash flow by up to 40%. And we’re WOTC experts, so we ensure you’re in compliance so you’ll never have to stress about an audit.
Leave the Paperwork to Us
We’ll do all the heavy lifting for you: We can integrate the Work Opportunity Tax Credit questionnaire into your applicant tracking system (ATS), onboarding platform or another Human Resources Information System (HRIS). We also challenge denials and simplify and follow up on documentation to decrease fallout.
If you’re curious how your company could benefit from WOTC or other business tax credit programs, request a free, no-obligation assessment today.
FAQs
How long must an employee work before an employer receives a WOTC tax credit?
Employers can start claiming the WOTC after an eligible employee has worked 120 hours.
Is there a limit on the number of WOC credits I can claim?
No, employers can hire an unlimited amount of employees in the work opportunity tax credit program target groups. However, they can’t claim more tax credits than their business income tax liability or Social Security tax owed.
Do employees benefit from the Work Opportunity Tax Credit?
No, the WOTC program is a tax credit available to employers only.