Learn About Work Opportunity Tax Credits
The Work Opportunity Tax Credit Program (WOTC) is a separate, non-refundable federal tax credit that is part of the standard business credit. It is designed to provide incentives to employers who hire persons who qualify as members of target groups which have higher-than-average unemployment rates. WOTC qualifying groups include Disconnected Youth, Ex-felons, Veterans and Supplemental Security Income (SSI) Recipients. WOTC is administered by the Employment Development Department, or EDD. The tax credit is earned by the employer during eligible employees’ first year of work. To find out more about how to qualify for a work opportunity tax credit, continue below.
Learn How to Qualify for a Work Opportunity Tax Credit
Toqualify for a Work Opportunity Tax Credit and apply for WOTC, you must be a member of one of the following eight target groups:
- Eligible veteran: You must have served on active duty in the United States military for a minimum of 180 days, or have been discharged due to a disability incurred from military service. You must not have had active duty for a certain period before the date you were hired. You must also be a recipient of CalFresh or a service-related disability benefit. Veterans must also meet other criteria.
- CalWORKs (TANF) Recipient: You may qualify for WOTC if you are a member of a family that has been receiving short-term or long-term CalWORKs benefits within a certain period of time. Download our free guide to read more about CalWORKs.
- CalFresh (SNAP) Recipient: You may be eligible for Work Opportunity Tax Credits if you are a member of a family which has been receiving food stamps for a certain period of time.
- DesignatedCommunityResident: You are considered to be a Designated Community Resident if you are between the ages of 18 and 39 years, and you live in a federally designated Empowerment Zone or a Rural Renewal County. Empowerment Zones and Rural Renewal Counties are distressed urban and rural areas which may be eligible for certain grants, tax credits for businesses and other benefits.
- Vocational Rehabilitation Referral: You will qualify for WOTC in this category if you have a disability, and you meet certain rehabilitative requirements.
- Ex-Felon: To qualify for WOTC, you must be an ex-felon who is hired within one year of your conviction or your release.
- Supplemental Security Income Recipient: You must have been receivingSupplemental Security Income (SSI) benefits for a certain period of time.
- Summer Youth Employee: You must be 16 or 17 years old, living in a federally-designated Empowerment Zone and employed for a certain period of time during the summer.
Note that relatives of employers, former employees and majority business owners are not eligible for Work Opportunity Tax Credits. To learn more about WOTC eligibility, download our guide.
Learn How to File a Work Opportunity Tax Credit Application
To request a Work Opportunity Tax Credit application, you must contact the online service eWOTC. You must be an employer with a minimum of 25 employees. You can complete your work opportunity tax credit application once you have enrolled in Employer Services Online, by logging on to the eWOTC website. Employers with fewer than 25 employees may also submit new applications online, and they also have the option to mail in their applications to the Employment Development Department. Howver, submitting the application online is a much faster process.
How much credit is available with the Work Opportunity Tax Credit Program ?
The available Work Opportunity Tax Credit varies by the target group. WOTC also depends on the number of hours each individual works, which must meet minimum requirements. The Work Opportunity Tax Credit Program also takes into consideration the amount of wages each eligible employee has earned. As an employer, you may claim the tax credits for a maximum of two years. Typically, employers can earn a tax credit up to 40 percent of an employee’s first year of salary. Each target group has a maximum tax credit cap. The amount is also based on the number of hours each qualifying employee works. Employers who do not take the full tax credit amount because of tax liability limitations may back track the unused credit by one year, or carry it forward up to 20 years.
Work Opportunity Tax Credit is paid to the employer and not shared with employees. The WOTC is designed to help persons from underrepresented groups get work. It gives targeted persons opportunities to make the shift from economic dependency to self-sufficiency. Prospective employees are not required to give their employers information about their eligibility; their participation must be voluntary. If they do wish to provide the relevant information, then they must complete the Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
To learn more about WOTC, download our comprehensive guide.