What is WOTC?

WOTC is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are a few simple steps to follow to apply for WOTC.

How does WOTC work?

The tax credit employers can claim depends on the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that can be earned.

• If the individual works at least 120 hours, the employer may claim a tax credit equal to 25% of the individual’s first-year wages, up to the maximum tax credit.
• If the individual works at least 400 hours, the employer may claim a tax credit equal to 40% of the individual’s first-year wages, up to the maximum tax credit.

Only for the Long-term Temporary Assistance for Needy Families (TANF) target group, the credit is available to employers who hire members of this group for a two-year period.

• If the individual works at least 120 hours in the first year, the employer may claim a tax credit equal to 40% of first-year wages, up to the maximum tax credit.
• If the individual works at least 400 hours in the second year, the employer may claim a tax credit equal to 50% of second-year wages, up to the maximum tax credit.

How are the tax credits calculated?

Employers generally can earn a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs. Employers will earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours. Use the WOTC Calculator to see how much your business can earn in tax credits.

What are the maximum tax credit amounts?

The maximum tax credit amounts depend on the new employee’s target group and the number of hours worked during the first year of employment. Learn more about the maximum tax credits associated with each WOTC target group.

How do I apply?

1. Complete page 1 of IRS Form 8850 by the day the job offer is made.
2. Complete page 2 of IRS Form 8850 after the individual is hired.
3. Complete ETA Form 9061 or ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a state workforce agency, Vocational Rehabilitation agency, or another participating agency.
4. Submit the completed and signed IRS and ETA forms to:

Delaware Department of Labor
Division of Employment & Training
Work Opportunity Tax Credit Unit
4425 North Market Street, 3rd FL
Wilmington, Delaware 19802
Attn: WOTC Coordinator

Forms must be submitted within 28 calendar days of the employee’s start date.

Related Topics:  Employers, Employment & Training, Work Opportunity Tax Credit (WOTC)