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 nine target groups may qualify an employer for the WOTC:

• Qualified recipients of Temporary Assistance to Needy Families (TANF).
• Qualified veterans receiving Food Stamps or qualified veterans with a service connected disability.
• 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 40 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 40.
• Qualified recipients of Supplemental Security Income (SSI).
• Long-term family assistance recipients.

Federal Tax Credit Amounts and Retention Periods for Target Groups A through H

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.

The Empowerment Zone and Enterprise Community program offers tax incentives to companies located within these designated areas that hire individuals who both live and work in these Communities. These programs provide opportunities for growth and revitalization. Empowerment Zones are selected based on poverty levels, unemployment rate, crime rate, and the number of low income households.

The Empowerment Zone Tax Credit is a tax credit equal to 20% of the first $15,000 in wages in any year if the employee lives and provides services in an Empowerment Zone. The Department of Housing and Urban Development designates Rural and Urban Empowerment Zones.

Employee must reside in the EZ/RC and be employed for at least 90 days after the initial date of hire.

The Renewal Community Tax Credit provides businesses with an incentive to hire individuals who both live and work in a Renewal Community.  The tax credit is equal to 15% of the first $10,000 in wages in any year if the employee lives and provides services in a Renewal Community. The Department of Housing and Urban Development designated 40 Urban and Rural Renewal Communities.

Qualified employees:

The employee performs substantially all of his or her services for you within a renewal community and in your trade or business.
While performing those services, the employee’s main home is within that renewal community.

Both full-time and part-time employees may qualify.