The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to companies that hire individuals from certain target groups
who face significant barriers to employment. U.S. employers are claiming almost $1 billion in credits under this program each year.
Is your company taking advantage of these FREE tax dollars?
What type of workers does the WOTC include?
- Long Term Temporary Assistance for Needy Families (TANF) recipients
- 18-39 Year-Old Food Stamp (SNAP) recipients
- 18-39 Year-Old Designated Community Residents
- 16-17 Year-Old Summer Youth employees
- Vocational Rehabilitation Referral individuals
- Supplemental Security Income (SSI) recipients
- Qualified long-term unemployment recipients
For certification criteria for each target group, read the Eligible New Hires for the Work Opportunity Tax Credit from the U.S. Department of Labor.
How does the WOTC work?
According to the U.S. Department of Labor, the tax credit that an employer can claim depends upon a few variables, including wages paid to the individual during the first year of employment and the total number of hours worked.
For the TANF group only, the tax credit is available for a two-year period:
- Year 1: the employer may claim a tax credit equal to 40% of the first-year wages if the individual works at least 400 hours
- Year 2: the employer may claim a tax credit equal to 50% of the second-year wages if the individual works at least 400 hours
For all other groups, the credit is available during the first year of employment:
- The employer may claim a tax credit equal to 25% of the first-year wages if the individual works at least 120 hours.
- The employer may claim a tax credit equal to 40% of the individual’s first-year wages if the individual works at least 400 hours.
It should also be noted that there is a maximum tax credit that can be earned, which is determined by the target group to which the employee belongs and the number of hours worked during the first year of employment.
How to apply for the WOTC
- Obtain and complete these forms:
- Mail these completed and signed IRS and ETA forms to the Hawaii Workforce Development Division.