“WOTC” is an acronym for Work Opportunity Tax Credit. It is a Federal tax credit available to employers who hire individuals from defined target groups. Individuals from this these groups are defined as having consistently faced significant barriers to employment. The goal of WOTC is to facilitate access to quality employment, while also incentivizing workplace diversity.
How Employers Benefit from WOTC
The primary benefit of WOTC for employers is to reduce federal income tax liability. Tax credits are between $1,200 and $9,600 per employee. However, the actual amount of the credit depends on the target group from which an employee is hired and the number of hours the employee works in his or her first year. For tax-exempt organizations, the employer may receive a credit against Social Security taxes when hiring qualified individuals from the military veterans target group.
The WOTC program provides over $1 billion in tax credits to participating employers each year. Additionally, participating employers succeed in increasing workplace diversity, which benefits an organization’s employer brand and enriches its work culture.
How the Workforce Benefits from WOTC
Beyond the financial benefits to an employer, WOTC benefits the workforce by providing unemployed individuals with greater access to employment. The program helps these individuals transition from economic dependency to self-sufficiency though stable, quality employment. In turn, the overall economy benefits from increased productivity and an expanded taxpayer base through hiring.
How to Qualify for WOTC
Any private sector business that hires a new employee from an eligible target group may apply for WOTC, this includes some tax-exempt organizations. To apply, employers must complete and submit the required forms. The U.S. Department of Labor provides the “Employer’s Guide to the Work Opportunity Tax Credit” to help with implementation.
There are also third-party vendors that make it easier to meet WOTC documentation and filing requirements. ExactHire clients who use our employee onboarding software, OnboardCentric, have access to an integrated solution that streamlines the process of applying for WOTC and other tax-incentive programs.