Staffing agencies can earn $9,600 per hire through the Work Opportunity Tax Credit (WOTC). Hiring employees from specific groups that historically have faced barriers to employment reduces tax liabilities.
Many staffing agencies unknowingly place eligible employees and lose out on the WOTC. Partnering with an experienced tax credit processing firm ensures agencies take advantage of these tax credits, potentially saving thousands of dollars.
Work Opportunity Tax Credit Qualifications
The WOTC lets businesses, such as staffing agencies, take advantage of a tax credit when hiring eligible employees from the following target groups:
- Qualified veterans
- Certain recipients of Temporary Assistance for Needy Families (TANF)
- Specific Supplemental Nutrition Assistance Program (SNAP) recipients
- Qualified vocational rehabilitation-referred individuals
- Certain Supplemental Security Income (SSI) recipients
- Designated community residents living in Empowerment Zones (EZs) or Rural Renewal Counties (RRCs)
- Qualified ex-felons
- Certain summer youth employees living in EZs
- Specific long-term unemployed individuals
The WOTC program excludes:
- Employees with majority ownership in the company
- Dependents or relatives of the employer
- Rehired employees
Benefits of the Work Opportunity Tax Credit
Staffing agencies can benefit from the WOTC in these ways:
- Reduced tax liability: Hiring qualified employees from the target groups decreases a staffing agency’s federal income tax liability.
- Substantial savings: There is no limit to the number of qualified employees who can be hired to take advantage of the tax credit.
- Lower business expenses: Qualifying for the WOTC program reduces the cost of doing business.
Calculating the Work Opportunity Tax Credit
WOTC calculations depend on the employee’s target group, wages, and total hours worked:
- The typical tax credit range is $1,200 to $9,600.
- Staffing agencies that hire eligible employees typically receive a tax credit equal to 40% of up to $6,000 of wages paid to each employee who performs at least 400 hours of service during their first year of employment.
- The agencies may claim 25% of the wages for eligible employees who work at least 120 hours during their first year of employment.
Staffing agencies can earn $9,600 through the WOTC in this way:
- Hire a qualified veteran: The employee must meet the criteria for the enhanced credit, including veterans with a service-connected disability who were unemployed for at least 6 months during the year before the hire date.
- Meet the hourly requirements: The veteran must work at least 400 hours during their first year of employment.
- Pay qualifying wages: The WOTC for this type of veteran is 40% of qualified wages, up to $24,000. Therefore, if the veteran earns at least $24,000 in qualifying wages and works at least 400 hours, the maximum tax credit is $9,600. ($24,000 x 40% = $9,600)
Take Advantage of the Work Opportunity Tax Credit
Partner with MJA & Associates for expert-led solutions to ensure your staffing agency never misses the WOTC again.
