Work Opportunity Tax Credit:

Table of Contents

1.The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025 as being a member of one of 10 targeted groups.
2.Typically, the Work Opportunity Tax Credit (WOTC) amounts to 40% of wages, capped at $6,000, that are disbursed to or accrued for an individual who meets the criteria:
a.is in their first year of employment;
b.Receiving certification as a member of a specified targeted group is a prerequisite for eligibility in this context.; and
c.Completing a minimum of 400 service hours for the employer is a key requirement in this scenario.

Therefore, the highest achievable tax credit typically stands at $2,400.

3.Wages for individuals who render services ranging from at least 120 hours to fewer than 400 hours for the employer are subject to a 25% rate.
4.A maximum of $24,000 in wages can be considered when calculating the Work Opportunity Tax Credit (WOTC) for specific eligible veterans.
5.The Work Opportunity Tax Credit (WOTC) cannot be claimed by an employer for individuals who have been rehired.
6.Typically, taxable employers have the option to apply the unused Work Opportunity Tax Credit (WOTC) from the current year by carrying it back one year and subsequently carrying it forward for up to 20 years.

Eligible Employers:

1.Taxable Employers – Employers subject to income taxes can seek the Work Opportunity Tax Credit (WOTC) as a deduction.
2.Eligible Tax-Exempt Employers – WOTC is applicable exclusively to payroll taxes and specifically for remuneration disbursed to individuals belonging to the Qualified Veteran targeted group.

Which Employees may an employer claim the WOTC?

Individuals who have been formerly incarcerated or have a prior felony conviction;

A formerly incarcerated student is defined as a person who voluntarily discloses that they have been convicted of a crime as an adult.
Anyone convicted of a crime is known as a convicted felon or convict.

Individuals receiving state assistance through Section A of Title IV of the Social Security Act (SSA);

Regarding the collection of payments owed to Federal agencies, encompassing sections 6504–6505, and concerning intergovernmental cooperation, spanning sections 7501–7507, as well as pertaining to standardized audit prerequisites for State and local governments receiving financial assistance from the Federal government.
It prohibits the withholding of grants-in-aid under specific circumstances.
For the prevention of discrimination in programs that receive federal assistance.
Concerning the qualifications for obtaining surplus property from the federal government.
Regarding limitations on disbursements to a state receiving funds under Title XIX.
Concerning the involvement of the Commonwealth of the Northern Mariana Islands, ensuring equal footing with Guam.
In terms of providing data to the United States Commission on Enhancing the Efficiency of the United Nations, and §725(b), regarding the assignment of government personnel.
Concerning the obligations of individual federal agencies regarding the security and privacy of computer systems.
Regarding advantages received by individuals engaged in drug trafficking and possession.
with respect to the OASDI Trust Funds.
Concerning financial support through Title IV and Medicaid for residential treatment programs focused on families dealing with substance use disorder.

Veterans;

A Veteran is characterized as an individual who has actively served in the military, naval, or air service and has received a discharge or release under conditions other than dishonorable.

Individuals residing in regions identified as empowerment zones or counties undergoing rural renewal;
individuals referred to an employer following completion of a rehabilitation plan or program;
Individuals whose households receive supplemental nutrition assistance according to the Food and Nutrition Act of 2008.
Individuals receiving benefits from supplemental security income under Title XVI of the Social Security Act (SSA).
Individuals whose households receive state assistance under Section A of Title IV of the Social Security Act (SSA).
Individuals experiencing long-term unemployment.

How can an Employer claim the WOTC?

1) The employer must submit Form 8850 to the specified local agency within 28 calendar days from the commencement of the new employee’s tenure, and this agency should be situated in the state where the business is based.
2) Within 28 calendar days of the new employee’s start date, the employer is required to submit Form 8850 to the designated local agency situated in the state where the business operates.
3) The Targeted Jobs Tax Credit (TJTC), which came before WOTC, did not include a prerequisite for pre-screening.