Tax & Business Alert
Abstract: Businesses that are seeking
to hire should be aware of a valuable tax credit for hiring individuals from
one or more targeted groups. Employers can qualify for the Work Opportunity Tax
Credit (WOTC), which is worth as much as $2,400 for most eligible employees
($4,800, $5,600 and $9,600 for certain veterans and
$9,000 for long-term family assistance recipients). The credit is generally
limited to eligible employees who begin work for the employer before
January 1, 2026.
Hiring?
How to benefit from the Work Opportunity Tax Credit
If you’re a business owner or manager who is seeking to hire,
you should be aware of the details of a valuable tax credit for hiring
individuals from one or more targeted groups. Employers can qualify for the
Work Opportunity Tax Credit (WOTC), which is worth as much as $2,400 for most
eligible employees (higher or lower for certain employees). The credit is
limited to eligible employees who begin work for an employer before
January 1, 2026.
Generally, an employer is eligible for the credit only for
qualified wages paid to members of a targeted group. These groups are:
To claim the WOTC, an
employer must first get certification that the person hired is a member of one
of the targeted groups above. They do so by submitting Form 8850, Pre-Screening
Notice and Certification Request for the WOTC to their state agency, within 28
days after the eligible worker begins work.
You
must meet certain requirements
There are several requirements to qualify for the credit. For example, each employee must have completed
a specific number of hours of service for the employer. Also, the credit isn’t
available for employees who are related to, or who previously worked for, the
employer.
There are different rules and credit amounts for certain
employees. The maximum credit available for first-year wages is $2,400 for each
employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600
or $9,600 for certain veterans. Additionally, for long-term family assistance
recipients, there’s a 50% credit for up to $10,000 of second-year wages,
resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services
performed during any 90-day period between May 1 and September 15.
The maximum WOTC credit available for summer youth employees is $1,200 per
employee.
An eligible employer claims the WOTC on its federal income tax
return. The credit value is limited to the business’s income tax liability.
A
valuable credit
There are additional rules and requirements. In some cases,
employers may elect not to claim the WOTC. And in limited circumstances, the
rules may prohibit the credit or require an allocation of it. However, for most
employers hiring from targeted groups, the credit can be worthwhile. Contact us
with questions or for more information about your situation.
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