WOTC Questions: How Does the Work Opportunity Tax Credit Work?

At CMS, as Work Opportunity Tax Credit (WOTC) experts and service providers since 1997, we receive a lot of questions via our website’s chat box that we try to answer:

How Does the Work Opportunity Tax Credit Work?

CMS Says: The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain individuals from target groups with significant employment barriers to employment. Thoese might include long-term unemployed, SNAP recipients, veterans etc.

How does WOTC Work?

The WOTC Tax credit  can be claimed by employers when they screen their new hires to determine if they are eligible.

  • Target group the new hire is qualified under

CMS provides this screening as a service. Once an individual is determined to be eligible, and the state workforce agency issues tax credit certification, we track the following:

  • Number of hours worked (has to reach a minimum of 120)
  • Wages paid to that individual during his or her first year of employment

How Are Tax Credits Calculated?
Employers can earn 25% of the first $6,000 in wages if the employee works a minimum of 120 hours and 40% if the employee works at least 400 hours. The Long Term Family Assistance Target Group is the only credit that is taken over two years.

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