Thanks to the Consolidated Appropriations Act, 2021, the Work Opportunity Tax Credit (WOTC) has been reauthorized through Dec. 31, 2025. It had previously been set to expire at the end of 2020. The federal tax credit was enacted in 1996 and has been extended multiple times.
WOTC is a federal program that provides dollar-for-dollar reductions in federal tax liability to organizations that hire from select groups.
For some organizations, however, the valuable tax reductions made possible by the program might still be flying under the radar. To help make sure everyone who wants to benefit from WOTC is in a position to do so, let’s delve a little deeper.
How it works
The goal of WOTC is to simultaneously help both businesses and disadvantaged groups. The former qualify for a reduced tax bill for each qualifying hire, while the latter gain access to better employment opportunities.
The groups in question include:
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Temporary Assistance for Needy Families (TANF) recipients
- qualified veterans
- ex-felons
- residents of rural renewal counties or empowerment zones
- vocational rehabilitation referrals
- Supplemental Security Income (SSI) recipients
- long-term unemployed
But keep in mind the amount of the tax credit is not the same for each group. For example, the maximum credit available for hiring a short-term SNAP recipient is $2,400, while the maximum credit amount for hiring a long-term TANF recipient is $9,000. (The biggest possible credit is $9,600 for hiring a veteran with a service-connected disability who had been unemployed for at least six months.)
Furthermore, the credit is not available immediately. The calculation is based on qualified wages paid to the employee for the first year of employment and the number of hours worked — 25% of qualified first-year wages for 120 to 400 hours worked, and 40% after the 400-hour mark.
How Paycom can help
As always, the right HR software — in this case, Paycom’s Tax Credits tool — marks a drastic improvement over the old-fashioned way.
Consider WOTC’s required paperwork: the Pre-Screening Notice and Certification Request Form 8850 and the Individual Characteristics Form 9061. To obtain a potential tax credit, an organization must get the applicant to fill out both forms either on or before the job offer date, which must then be submitted to the appropriate state workforce agency within 28 days of the applicant’s start date.
Most likely, this means someone in HR will be tasked with something that feels very much like a chore. And that’s assuming they remember WOTC in the first place.
Through Paycom’s applicant tracking system, applicable prospective employees are automatically prescreened for WOTC purposes and the appropriate forms are automatically submitted for you.
In short, this means:
- Paycom completes nearly 100% of the work
- no need for a third-party vendor
- possible higher credits for empowerment zones and rural renewal counties per W-2 processed
- online eligibility verification
- real-time dashboard with custom reporting
- peace of mind knowing you’re not leaving money on the table
- only pay when you receive money back from an eligible credit
To learn more, don’t hesitate to reach out and schedule a demo.
DISCLAIMER: The information provided in this blog is for general informational purposes only. Accordingly, Paycom and the writer of the above content do not warrant the completeness or accuracy of the above information. It does not constitute the provision of legal advice, tax advice, accounting services or professional consulting. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other professional services.
