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Work Opportunities Tax Credit (WOTC)

Overview

Work Opportunity Tax Credit (WOTC)  is a federal tax credit program that offers incentive to employers who hire individuals who have consistently had difficulty in securing and retaining employment.  The credit helps offset the federal tax liability of private, for-profit employers.  The program covers only new hires that have not worked for the employer in the past.

The Tax Relief & Healthcare Act of 2006 (P.L. 409-432) signed by President Bush on December 20, 2006, reauthorized the WOTC program for the years 2006 & 2007.  The following changes apply only to calendar year 2007: 

  • Increased mailing criteria from 21 days to 28 days
  • Raised the age for food stamp recipients from 24 to 39
  • Eliminated income requirement for ex-felons
  • Merged Welfare to Work Tax Credit into the WOTC program as one credit

The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-38) signed by President Bush on May 25, 2007 includes an extension of the Work Opportunity Tax Credit program effective May 26, 2007 through August 31, 2011.  This bill created the following changes:

  • Created a new category for Disabled Veterans who are entitled to compensation for a service-connected disability.  The disability has to be at least 10% or higher and they need to be hired within one year of being discharged from active duty, or were unemployed for any 6 months of the year prior to being hired.
  • The Vocational Rehabilitation target group was expanded to include individuals who completed a work plan developed and implemented by an employment network (Ticket to Work).
  • Individuals who begin work after May 25, 2007, the High Risk Youth group has been renamed Designated Community Residents and the age expanded to include individuals who are between 18 and 39 years.  In addition, residents of rural renewal counties have been added to this group.

Target Groups

  • IV-A Recipient - A member of a family that has received Temporary Assistance for Needy Families (AFDC/TANF) for any nine (9) months within the last 18 months ending on the hire dates.
  • Veterans - Active duty veterans who have received food stamp assistance for at least three (3) months of the last fifteen (15) months ending on the hire date.
  • Ex-Felons - A felon that has been convicted or released from prison of a felony within one year of the hire date.
  • Designated Community Resident – Individuals between 18 but not yet 40 years old who live in Federal Empowerment Zone or Enterprise Community (EZEC).  (To see if you live in one of the EZEC areas go to the RC/EZ/EC Address Locator map at:  http://egis.hud.gov/egis/cpd/rcezec/ezec_open.htm
    In addition, residents of rural renewal counties have been added to this group.
  • Vocational Rehabilitation – A disabled person who has completed or is completing rehabilitative services from an approved state or veteran’s agency.
  • Ticket-to-Work Participants – A person who is enrolled in the ticket-to-work program through the Social Security Administration’s employment network.
  • Summer Youth Employees – Youth between 16 and 17 years old, employed between May 1 and September 15, who live in an Empowerment Zone or Enterprise Community (EZECs).
    To see if you live in one of the EZEC areas go to the RC/EZ/EC Address Locator map at:
    http://egis.hud.gov/egis/cpd/rcezec/ezec_open.htm.
  • Food Stamp Recipient – A person between the ages of 18 but not yet 40 years old and a member of a family that has received food stamps for the last consecutive six (6) months, or received Food Stamps for at least three (3) of the last five (5) but are no longer eligible to receive.
  • SSI Recipient – A person who has received Supplemental Security Income (SSI under Title XVI of the Social Security Act) benefits for any month ending within the last 60 days.
  • Long-term Family Assistance Recipient – A person that is a member of a family that:
    1. Receive AFDC/TANF benefits for at least 18 consecutive months ending on the hiring date; or
    2. Received AFDC/TANF benefits for any 18 months beginning after August 5, 1997 ending within the last two years of the hiring date; or
    3. Stopped being eligible for assistance because of federal or state law limits.

 How Much is the Tax Credit?

Qualified wages for the WOTC Target Groups is based on the first $6,000 in wages

  • A 25% credit for workers who work at least 120 hours but less than 400 hours, and
  • A 40% credit for workers who work at least 400 hours for a maximum credit of $2,400
  • Disabled Veteran, Summer Youth and Long Term employees have specific maximum credits calculated differently than the other WOTC target groups.  Please see below for the specific calculation.

Qualified wages for Disabled Veterans or Unemployed Veterans target group is based on the first $12,000 in wages

  • A 25% credit for workers who work at least 120 hours but less than 400 hours, and
  • A 40% credit for workers who work at least 400 hours for a maximum credit of $4,800

Qualified wages for Summer Youth is based on the first $3,000 in wages

  • A 25% credit for workers who work at least 120 hours but less than 400 hours, and
  • A 40% credit for workers who work at least 400 hours for a maximum credit of $1,200

Qualified wages for Long Term Family Assistance can be earned for the first two years of employment based on the first $10,000 in wages each year

  • A 25% credit of qualified wages is paid in the first year of employment for employees completing 120 hours but less than 400 hours
  • A 40% credit of qualified wages is paid in the first year of employment for employees completing 400 hours or more for a maximum first year credit of $4,000
  • A 50% credit of the qualified wages is paid for the second year of employment for a maximum second year credit of $5,000

How to Apply

Employers must have applicants complete Form 8850 (Pre-Screening Notice & Certification Request) on or before the day you offer them a job.

Each applicant who is potentially qualified for WOTC based on the Form 8850, must then complete an ETA-9061 (Individual Characteristic Form).

Forms 8850 & ETA 9061 must be postmarked within 28 days of the date the applicant begins work to be considered.  Any forms not meeting this requirement will be denied.  The forms cannot be accepted by fax or email.

Mail completed forms to the following address:

WOTC Program Coordinator
Indiana Department of Workforce Development
WOTC – SE311
10 N Senate Avenue
Indianapolis, IN  46204
317-232-7746
(F) 317-233-2679

Form 8850 must be postmarked within 28 days of the date the applicant begins work to be considered.  Any late requests will be denied. The form cannot be accepted by fax or email.

Click here to download Form 8850 
(Per-Screening Notice & Certification Request)

Click here to download Form ETA-9061
(Individual Characteristics Form)

Certification

Form ETA-9063 (WOTC Certification) is sent to employers verifying that an employee is WOTC eligible and may qualify the employer for the federal tax credit. This form should be retained for the employer’s tax records.

How to Obtain the Tax Credit?

Employers use IRS Form 5884 (Work Opportunity Credit) to claim the WOTC tax credit. Form 5884 is filed with employer’s federal income tax return. Employers use IRS Form 8861 (Welfare to Work Credit) to claim the Long-term Family Assistance Tax credit. Form 8861 is filed with employer’s federal income tax return.

The credit is usually applied to the employer‘s tax liability for the tax year in which the employee is hired. If the credit exceeds the current year’s tax liability, the employer may apply the remaining credit to the previous year’s tax liability. This may be carried back one year or forward 20 years. For more information on unused credits, employers should contact the IRS or their tax accountant.