As part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, as included in the Consolidated Appropriations Act, 2021, the Work Opportunity Tax Credit (WOTC) received a five-year extension through December 31, 2025. Due to the impacts of COVID-19, many organizations had to reduce their workforce to stay afloat. As businesses begin to reopen or grow in the current economy, programs like the WOTC can help offset the federal income taxes imposed on those businesses.
The WOTC is a prospective program designed to incentivize businesses to hire individuals who qualify under defined targeted groups that have faced challenges that made it difficult to enter the workforce.
Depending on which target group an individual qualifies under, the maximum credit per new hire can range from $2,400 to $9,600.
Current Target Groups
- Qualified veterans, unemployed or disabled
- Certain members of families that receive Supplemental Nutrition Assistance Program benefits (food stamps)
- Members of families that receive short or long-term Temporary Assistance to Needy Families or Aid to Families with Dependent Children (welfare)
- Qualified ex-felons or pardoned, paroled, or work-release individuals
- Individuals who have completed or are completing vocational rehabilitation programs
- Individuals receiving Supplemental Security Income
- Designated community residents, such as individuals living within an empowerment zone or a rural renewal community
- Qualified “summer youth,” individuals who are 16 or 17 years old living in an empowerment zone and employed during the period of May 1 through September 15
The value of the tax credit is determined by the target group the employee qualifies under, the number of hours worked, and the wages earned in the period of employment applicable to that target group. The same wages used to calculate the WOTC can’t be used to calculate other credits such as the Employee Retention Tax Credit (ERTC), Employer Paid Family and Medical Leave Credit (IRC Section 45S), other disaster retention credits or forgivable PPP loan proceeds.
We’re Here to Help
If you have any questions, would like help pursuing this credit, or want to learn more about hiring and zone-based credits, please contact your Moss Adams professional.
We can also work with you using our comprehensive, web-based tool MaxCredits®, to determine if your locations are in federal or state tax–beneficial zones, identify qualified applicants, populate signature-ready forms using DocuSign® Digital Transaction Management platform, and file qualified forms with state WOTC agencies.
Our MaxCredits® platform not only automates the screening process of your applicants, but it also drives enhanced security, reduces the administrative burden on your hiring teams, and increases compliance.