Updated WOTC Guidance Released by IRS
March 1, 2023
Are you struggling to find workers? For employers facing a tight job market, the Work Opportunity Tax Credit (WOTC) could help offset hiring and training costs by providing a federal business tax credit. The Consolidated Appropriations Act, 2021 authorized the extension of the WOTC until Dec. 31, 2025.
In September 2022, the Internal Revenue Service (IRS) released new requirements for pre-screening and the certification process. To satisfy the requirement to pre-screen a job applicant, the pre-screen must take place on or before the day the job offer is made. If it takes place after the job offer is made, the employer will no longer be eligible. The following form must be completed by the job applicant and the employer; Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
Qualifying Worker Categories
The WOTC has 10 designated categories of workers, which includes:
- Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
- Certain veterans, including unemployed or disabled veterans
- The formerly incarcerated or those previously convicted of a felony
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Food stamp (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Qualified long-term unemployment recipients.
The WOTC is based on the number of hours worked in the first year of employment. If an employee works 120-399 hours, the employer qualifies for a 25% tax credit of first year wages. The tax credit increases to 40% if the employee works 400 hours or more.
| Tax Credit | First Year Wages | |
| Veterans | ||
| Disabled Veteran | $3,000 – $4,800 | $12,000 |
| Disabled and Unemployed Veteran | $6,000 – $9,600 | $24,000 |
| Unemployed Veteran at least 4-weeks | $1,500 – $2,400 | $6,000 |
| Unemployed Veteran at least 6-months | $3,500 – $5,600 | $14,000 |
| TANF Recipients | ||
| Short-Term | $1,500 – $2,400 | $6,000 |
| Long-Term | $2,500 – $9,000 | $10,000 (50% 2nd year) |
| Other Target Groups | ||
| SNAP, Designated Community, Voc. Rehab, Ex-Felon, SSI | $1,500 – $2,400 | $6,000 |
| Summer Youth | $750 – $1,200 | $3,000 |
| Tax – Exempt Organizations | ||
| For Qualified Veteran Only | Up to $6,240 |
The credit is normally not available for tax-exempt organizations, however, a special provision allows them to claim WOTC against the employers’ share of Social Security tax for hiring qualified veterans. These organizations can claim this credit by completing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
Previous guidance under the Targeted Jobs Tax Credit (TJTC), which preceded the WOTC, did not have a pre-screening requirement to be eligible. When Congress enacted the WOTC in 1996, they included the pre-screening requirement to provide an incentive for employers to hire and retain certain categories of workers who have faced some type of barrier to employment.
If you would like to learn more about this tax credit and others, we encourage you to work with your business tax advisor, like those at Doeren Mayhew. Contact us today for any questions about how this tax credit impacts your payroll.
