Small business owners want to take advantage of as many tax credits as possible. However, sometimes it’s hard to find clear information on how to qualify and how to apply.
Is the Work Opportunity Tax Credit (WOTC) right for your business? Let’s find out together!
At CSI Accounting & Payroll, we’ve worked with small business taxes for over 50 years. That means we’ve gotten a lot of questions about tax credits, including these about the Work Opportunity Tax Credit (WOTC):
- What is the Work Opportunity Tax Credit? What does it do?
- Who qualifies for the Work Opportunity Tax Credit?
- How do I apply? What is the Work Opportunity Tax Credit questionnaire?
Purpose of the WOTC
The Work Opportunity Tax Credit (WOTC) is a tax credit for small businesses, incentivizing them to hire certain groups of people who may have difficulty finding work.
It’s typically equal to 40 percent of the first $6,000 of their pay, totaling up to a $2,400 credit. This offsets a good chunk of pay for groups who may work limited hours at a low pay rate, such as summer youth employees.
The credit is set to expire in 2026 (with the possibility of being renewed), so claim it while you can!
However, keep in mind that it’s very difficult to qualify for the WOTC. Let’s get into what those requirements are.
Qualifying for the WOTC
You may be eligible for this credit if all of the following are true:
- You hire qualified workers in these targeted groups:
- IV-A recipients
- Veterans
- Ex-felons
- Designated Community Residents (DCRs)
- Vocational rehabilitation referrals
- Summer youth employees
- SNAP recipients
- SSI recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients
- The qualified worker is in their first year of employment on or before December 31, 2025 (not rehired).
- The qualified worker performs at least 400 hours of services for you.
Remember, it’s very difficult to qualify. Luckily, it’s not the only credit out there. Read up on these other credits to ask your accountant about.
Applying & Filling out the WOTC Questionnaire
If you think you meet the qualifications and would like to apply, you need to fill out Form 8850 with the job applicant on or before the date that the applicant receives an employment offer. This will include the WOTC questionnaire, which is not an optional part of the form.
Some job applicants may feel hesitant to fill out the questionnaire if they think it will influence your decision to hire them. Applicants may refuse, and if they do, you will not be able to apply for the credit. However, this should not influence your hiring decision.
Form 8850 is due to your state workforce agency (SWA) generally no later than 28 days after the hired applicant starts the job. Check with your state’s WOTC coordinator to see if they accept electronic submissions or have any additional requirements, such as other forms to complete.
Then you’re good to go!
Apply for Credits With Confidence
If the process of applying for credits sounds confusing, you may find it helpful to partner with an accountant year-round via monthly accounting. That way, you have an expert to contact with unlimited one-off questions for no additional fee. Plus, they can educate you on other credits you might be eligible for.
Now that you know the purpose of the WOTC, who qualifies, and how to apply, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about the advice a monthly accountant can offer you by clicking the image below:
