Work Opportunity Tax Credit Explained

Stretching a budget. Getty Images
Stretching a budget. Getty Images

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to all private sector businesses. It was designed as an incentive to employers to hire individuals in certain targeted groups which consistently experience high rates of unemployment due to a variety of employment barriers. WOTC is designed to help move veterans into gainful employment and obtain on-the-job experience. It joins other tax credits, education, and workforce training programs that help American workers with barriers to employment prepare for good jobs; ease their transition from job to job; benefit from the creation of effective regional economic development strategies; and create high performance workplaces.

The American Recovery and Reinvestment Act expanded the WOTC Tax Credit program further to include unemployed veterans. Program changes will be for applicants who began work for an employer on/after January 1, 2009.

The following veteran "New Hires" qualify for the WOTC:

  • A veteran who is a member of a family that is receiving or recently received Food Stamps for at least a 3-month period during the past 15 months; and for individuals who begin to work for an employer after May 25, 2007.
  • Disabled veterans who are entitled to compensation for a 10% or greater service-connected disability and who, during the one-year ending on the hiring date, were: a) discharged or released from active duty in the U.S Armed Forces, or b) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these "disabled veterans" are capped at $12,000.
  • Unemployed Veterans qualify if:

    • The Veteran was discharged on/after September 1, 2001, but prior to December 31, 2010; and
    • The Veteran has received unemployment compensation for at least 4 or more weeks within a year from the hire date.

All new adult employees must work a minimum of 120 or 400 hours. The WOTC amount an employer may claim depends on the hours the employee works. The credit is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours and 40% for those employed 400 hours or more.

To receive certification that a new employee qualifies the employer for this tax credit, the employer must:

  • Complete page one of IRS Form 8850 by the day the job offer is made.
  • Complete page 2 of IRS Form 8850 after the individual is hired.
  • Complete either the one page ETA Form 9061 or Form 9062 as appropriate. For example:
    • If the new employee has already been conditionally certified as belonging to a WOTC target group by a state workforce agency (SWA) or participating agency, complete the bottom part of ETA Form 9062, sign and date it, or
    • If the new employee has not been conditionally certified, the employer and the new employee must complete, sign and date ETA Form 9061.
    • Mail the completed and signed IRS and ETA forms to the employer's state workforce agency within 28 days after the employee's employment-start date for all individuals who begin work for an employer on or after January 1, 2007. (To find the address of the SWA in your state consult the Directory of State Coordinators below).
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