What is WOTC?
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive that Congress provides to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. The main objective of this program is to enable the targeted employees to gradually move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are compensated by being able to reduce their federal income tax liability. WOTC joins other workforce programs that help incentivize workplace diversity and facilitate access to good jobs for American workers.
How long is this government program good for?
As of now, the Work Opportunity Tax Credit program is in effect till December 31st, 2025.
How many people qualify?
Based on our 20+ years of experience, 10-15% of new hires may be qualified if they are included in the target groups.
What is the amount of the credit available through WOTC?
The amount of the tax credit varies by target group. The tax credit for target groups A, B, C, D, E, G, and H is 40 percent of qualified first year wages up to $6,000 if the individual is retained for at least 400 hours. If the individual is retained less than 400 hours but at least 120 hours a 25 percent tax credit is available on qualified first year wages up to $6,000. The tax credit for target group I, long-term family assistance recipient, is 40 percent of first year qualified wages up to $10,000 and 50 percent of second year qualified wages up to $10,000. The individual must be retained at least 180 days or 400 hours. In certain circumstances you may be able to claim either the 40 percent of $6,000 tax credit or the 40 percent of $10,000 tax credit.
Calculating the WOTC Tax Credit
The tax credit amount under the WOTC program depends on employee retention. For most target groups, WOTC is based on qualified wages paid to the employee for the first year of employment.
What is the minimum length of employment to claim credits?
The WOTC amount an employer claims depends on the number of hours the employee works. All new employees must work a minimum of 120 or 400 hours. The credit is 25% of qualified first-year wages (up to $6,000) for those employed at least 120 hours but fewer than 400 hours, and 40% for those employed 400 hours or more.
Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before Jan.1, 2020. Tax-exempt employers may not claim the WOTC for other targeted group members.
After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).
Can I carry forward tax credits not used?
Yes, WOTC tax credits rules are the same as general business credits. You can carry forward unused tax credits for up to twenty (20) years & back one (1) year.
What does CMS do?
At CMS, we automate your application, certification and tracking of the Work Opportunity Tax Credit. We only get paid after we have received the government agency certification and verified that your employees qualify for tax credits. (See more about our WOTC services).
Why use CMS?
We are an employment tax credit expert whom not only performs a full screening process, but also helps you maximize tax credits and comply with federal policies.
Who do I call to get more information?
If you have any questions please call CMS work opportunity tax credit experts at 800-517-9099.
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