Common Questions and Answers About Work Opportunity Tax Credits


In order to help a business secure, owners and those in positions of authority should always be looking for ways to make savings or find financial benefits, and there are many different programs and tax incentives out there that you can take advantage of, including the WOTC program.

The Work Opportunity Tax Credit program is a great way for businesses to gain additional tax credits while also promoting a fairer and more diverse working world for all, and this guide will provide answers to some of the many common questions that arise regarding this topic.

What Exactly Is the Work Opportunity Tax Credit Program?

The WOTC is a federal tax credit program that American employers can potentially utilize for tax benefits. It works quite simply; an employer can gain tax credits by hiring employees from certain walks of life, such as veterans or people who are in receipt of food stamps.

More than $9,000 worth of tax credits can be gained per year, per employee with the Work Opportunity Tax Credit program, so it’s certainly worth considering as a way to reduce your company’s annual tax bill while also providing working opportunities for those in need.

What Is the Intent of the WOTC Program?

The WOTC program essentially exists to help people to work, focusing on those in groups who may usually encounter difficulties in gaining employment or have a particularly strong need for assistance in getting employed. It’s a program with noble intent, aiming to help people overcome barriers and lead better lives.

Who Qualifies for the Program?

In order to be able to make the most of this tax credit program, it’s important to know which targeted groups you should focus on during the hiring process. The list below shows just some of the main groups of workers who qualify:

  • TANF Recipients – Any individual who is part of a family receiving state assistance associated with the Temporary Assistance for Needy Families (TANF) plan.
  • Qualified veterans, which means any veteran who may be receiving food stamps, has been unemployed for an extended period, is disabled, or meets other specific criteria
  • Qualified former felons, which refers to any ex-felon who gets a new job within a year of being convicted or getting released from prison.
  • Designated community residents, which are people living in empowerment zones, enterprise communities, or renewal communities, aged between 18 and 40.
  • Vocational rehabilitation referrals, which refer to people with physical or mental disabilities who have been specifically referred to the employer in question.
  • Summer youth employees who meet select criteria.
  • Other people in receipt of various aids like SNAP, SSI, and long-term unemployment.

How Is the Credit Calculated? 

The value of the credit for each participant in this program is worked out based on a series of factors. Their status can impact the final value, for example, as well as their salary and the number of hours they work per week.

Is There a Screening Process?

Yes, when a new worker is hired with the intent of applying for the WOTC program, a screening process will take place to ensure that the worker in question qualifies the business for the Work Opportunity Tax Credits.

There are two forms to fill in during this process: IRS Form 8850 and Department of Labor Form 9061. The former is a pre-screening form, completed by both the applicant and the employer, while the latter is to be filled out only by the applicant.

How Is the Credit Claimed? 

Another form –  Form 5884-C – must usually be used to claim the tax credits. It’s often recommended to work with WOTC experts in order to ensure that the claims process is handled without any mistakes.

Which Wages Count Towards the Tax Credit? 

Only the wages paid out in the first year of employment actually count towards the credit for this program, so the employee needs to be working with your company for a full 12-month period before any application forms are filled out. All payments made directly from the business to the employee (with FUTA tax paid for) will qualify for the calculation of the credit.

Final Word

The WOTC program is an excellent incentive to help job-seeking individuals in difficult circumstances get into work, offering benefits to both employers and employees, so it’s something that every business, small and large, should be aware of. Hopefully, this guide has helped to shed some light on how the program works and how you can start to make the most of i