The Work Opportunity Tax Credit: How to Gain the Benefits
The WOTC program, if you have the right compliance and administrative capability in place, could benefit your bottom line. Does the manner in which your organization manages its WOTC program make it more of a financial boon or an administrative burden?
Making the Work Opportunity Tax Credit (WOTC) more of a benefit than a cost can often depend on how finance leaders handle it. To help make this determination, financial leaders should ask themselves this simple question: Does your organization have sufficient processes in place to administer the WOTC program for your financial benefit?
Here's how you can help maximize the return associated with the WOTC program.
WOTC: Its Intent
As noted by the DOL, the WOTC program allows an employer to claim a tax credit for hiring and retaining an employee who's a member of a specified target group that has historically faced significant barriers to employment, such as military veterans or food stamp recipients. The WOTC program seeks to stimulate the hiring of people from these target groups by providing benefits to employers who hire them, to offer group members economic opportunity through employment while simultaneously lessening the claims on other government assistance programs.
Hiring From Target Groups
There's no limit on the number of employees you can hire from target groups, and the maximum amount of the credit that may be claimed depends on the number of hours the employee works during the first year of employment and second year for long-term TANF recipients, wages paid to the employee and the categorization of the employee's target group. The DOL reports that employers can earn a tax credit of 25 to 40 percent of the new hire's applicable wages, with a maximum credit of up to $9,600.
Claiming Tax Credits Under WOTC
Finance leaders should put systems, processes and capabilities in place in order to benefit from WOTC and help ensure compliance with program requirements. In order to claim the tax credit, the applicant and employer must fill out IRS Form 8850 and submit it to the applicable State Workforce Agency within 28 calendar days following an employee's start date. The first step is screening the applicant for WOTC eligibility and capturing all necessary information from the applicant in order to complete the form, which must be done on or before the date on which any form of job offer is extended to the applicant.
1. Make Sure the Screening Process Is Applicant-Friendly
Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, can be complex and even confusing. Many of the questions may not be applicable to the particular applicant. A screening solution that uses plain language and is smart enough to skip past irrelevant sections is helpful. Also, look for screening solutions that work across multiple media platforms, especially mobile devices. Finally, integration into an Applicant Tracking Systems (ATS) may help ensure a high rate of screening compliance.
2. Identify All Eligibility Categories to Help Maximize the Value of the Credit
You'll need the capability to identify all the eligible WOTC groups. You'll also need to calculate the maximum amount of the allowable tax credit depending on which target group the employee is from. Documentation and administration are critical to maximum credit capture, and it's important to comply with the WOTC certification criteria.
The WOTC program, if you have the right compliance and administrative capability in place, could benefit your bottom line. Does the manner in which your organization manages its WOTC program make it more of a financial boon or an administrative burden? The answer to this crucial question largely depends on financial leaders like you.
Learn more about how the Work Opportunity Tax Credit works.