Work Opportunity Tax Credit
The Work Opportunity and Welfare-to-Work Tax Credits has two purposes:
- To promote the hiring of individuals who qualify as a member of a target group.
- To provide a federal tax credit to employers who hire these individuals.
Target Groups that Qualify for the WOTC
Individuals hired from any of the following 11 target groups may qualify an employer for the WOTC:
- Qualified recipients of Temporary Assistance to Needy Families (TANF).
- Qualified veterans receiving Food Stamps or a disabled veteran who is hired within one year of discharge date OR has been unemployed six months or more during the one year period prior to their hire date.
- Ex-felons hired no later than one year after conviction or release from prison.
- Designated Community Resident – an individual between the ages of 18 through 39 who reside in an Empowerment Zone, Renewal Community, or Rural Renewal County.
- Vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network.
- Qualified summer youth ages 16 through 17 who reside in an Empowerment Zone, Enterprise Community, or Renewal Community.
- Qualified Food Stamp recipients ages 18 through 39 on the hiring date.
- Qualified recipients of Supplemental Security Income (SSI).
- Long-term family assistance recipients.
- Unemployed Veteran who has received a minimum of four weeks of Unemployment Insurance benefits (from any State) in the one year period prior to the hire date AND was discharged from the military during the 5 year period prior to the hire date.
- Disconnected Youth - Age 16 to 24 who, during the six month period prior to the hire date has not been regularly attending school or training, has not been regularly employed, and lacks the basic skills to perform the job.
Federal Tax Credit Amounts and Retention Periods for Target Groups A, B, C, D, E, G, H, J, and K
Once an employee is retained at least 120 hours but less than 400 hours, a 25 percent tax credit is available on qualified first year wages up to $6,000. The employee must be retained 400 hours or more for a 40 percent tax credit on qualified first year wages up to $6,000.
Federal Tax Credit Amounts and Retention Period for Target Group I
Long-term recipients of TANF/AFDC, target group I, provides for a tax credit of 40 percent on qualified first year wages up to $10,000 and 50 percent on the second year of qualified wages up to $10,000. The employee must be retained a minimum of 400 hours.
Claiming Work Opportunity Tax Credits:
Employers may claim the Work Opportunity Tax Credit for a total of two years. Employers who do not take the full credit amount of the Work Opportunity Tax Credit because of the tax liability limitation may carry back the unused credit one year and carry forward the unused credit 20 years or until all the credit is used, whichever comes first.
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