Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC eligible group. Employers must apply for and receive a certification verifying the new hire is a member of an eligible group before they can claim the tax credit. After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes.
WOTC is authorized until December 31, 2025
WOTC Eligible Groups
Qualified TANF Recipient – Is a member of a family receiving TANF for any 9 months during the 18-month period ending on the hiring date.
Qualified Veterans
Veteran – Served on active duty in the U.S. Armed Forces for more than 180 days or receiving compensation for a service-connected disability, (Disabled Veteran).
- SNAP - Is a member of a family receiving SNAP for at least a 3-month period within the last 15 months.
- Disabled Veteran hired within 1 year of discharge - Hired within 1 year of discharge or release from activity duty.
- Disabled Veteran 6 months unemployed - Unemployed for a period totaling at least six months (whether or not consecutive) in the one-year period ending on the hiring date.
- Unemployed Veteran 4 weeks to 6 months - Unemployed for a period totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.
- Unemployed Veteran 6 months - Unemployed for a period totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
Qualified Ex-Felon- An individual who has been convicted of a felony and has a hiring date that is not more than 1 year after the conviction or release from prison or onto probation from prison.
Note 1: Re-entrants who are participating in a transitional program, such as” work release,” are eligible for the WOTC program, if incarcerated and the first available day for work is within one year of their hire date.
Note 2: For re-entrants who are serving time in halfway house as part of their sentence, “the release date” may be one year from the date they completed their time in the halfway house.
Qualified Designated Community Resident - An individual who is at least age 18,
but not yet age 40, on the hiring date and lives within either a
- Rural Renewal Community - PA is Warren and Venango Counties.
- HUD Empowerment Zone - PA is the Philadelphia/NJ area.
- Note: You must use the HUD EZ Locator Tool to determine.
Note: For Out of State RRCs and HUD EZs look on pages 3 & 4 of the 8850 instructions. You must still use the HUD EZ tool for out of state areas.
HUD EZ Locator Tool "click here" for tool – fill in the address of the employee and click on the “Run” button.
Qualified Vocational Rehabilitation Referral - An individual with a disability who having been referred to the employer upon completion of (or while receiving) rehabilitation services
- An Individualized Written Plan for Employment (IWPE) under a state plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or
- A program for veterans of vocational rehabilitation carried under Chapter 3 of Title 38, United States Code, or
- An Individual Work Plan developed and implemented by an Employment Network Employer under the Ticket 2 Work Program. Verification is required thru the SSA by the Tax Credit Services Unit.
Qualified Summer Youth Employee–Performs services for the employer between May 1 and September 15, and
- Has attained age 16, but not yet age 18, on the hiring date or, if later, on May 1 of the calendar year involved, and
- Has not been employed by the same employer prior to the 90-day (summer) period between May 1 and September 15, and
- Resides in an Empowerment Zone (EZ).
Qualified Supplemental Nutrition Assistance Program (SNAP) Recipient– Has attained the age of 18, but not yet age 40, on the hiring date, and is a member of a family that:
- Has received or is receiving assistance under a Supplemental Nutrition Assistance Program (SNAP) (formerly Food Stamps) under the Food Stamp Act of 1977 for the 6-month period ending on the hiring date, or
Qualified Supplemental Security Income (SSI) Recipient - An individual who is
receiving supplemental security income benefits for any month ending during the 60-day period ending on the hiring date.
Qualified Long-Term (TANF) Recipient – An individual who
- Has received Temporary Assistance to Needy Families (TANF or a successor program) payments for at least 18 consecutive months ending on the hiring date, or
- Has received TANF payments for any 18 months (whether or not the 18 months are consecutive) beginning after the day of enactment (i.e., August 5, 1997), and the earliest 18-month period beginning after August 5, 1997, ended during the past 2 years, or
- Stopped being eligible for receiving TANF payments because a federal or state law limits the maximum period such assistance is payable, and the individual is hired not more than 2 years after such eligibility ended.
Qualified Long-Term Unemployment (LTUR) Recipient– An individual hired after 2015 who on the day before the individual begins work for the employer, or, if earlier, the day the individual completes Form 8850 as a prescreening notice, is in a period of unemployment that:
- Not less than 27 consecutive weeks; and
- Includes a period (which may be less than 27 weeks) in which the individual received unemployment compensation under a State or Federal law.
Veteran Target Groups Amounts
| Target Groups | Minimum
(120 hrs.) |
Maximum
(400 hrs.) |
| SNAP Recipient
Unemployed Veteran 4 wks. - 6 mos. |
$1,500 | $2,400 |
| Unemployed Veteran
> 6 mos. |
$3,500 | $5,600 |
| Disabled Veteran
Hired within 1 yr. of discharge |
$3,000 | $4,800 |
| Disabled Veteran
Unemployed > 6 mos. |
$6,000 | $9,600 |
Non-Veteran Target Groups Amounts
| Target Groups | Minimum
(120 hrs.) |
Maximum
(400 hrs.) |
| SNAP Recipient
TANF Recipient Short-Term TANF Recipient Designated Community Resident Vocational Rehabilitation Referral Ex-Felon Supplemental Security Income Recipient Long-Term Unemployment Recipient
|
$1,500 | $2,400 |
|
Long-Term TANF Recipient
|
N/A |
$9,000 (over a 2 yr. period)
|
|
Summer Youth
|
N/A | $1,200 |
Work Opportunity Tax Credit (WOTC)
Frequently Asked Questions
Q: I see that WOTC program was to expire on 12/31/2020. Did WOTC program get extended?
A: Yes, the WOTC Program was extended to 12/31/2025.
Q: We hired an eligible employee but did not know about the 28-day rule at the time, can you waive it?
A: No. Unfortunately, the 28-day rule cannot be waived, it is a federal law.
Q: What are the benefits to using the online system?
A: Using the online system to submit WOTC applications reduces the processing time significantly. It also reduces postage fees and establishes an immediate postmark date for the 28-day rule. The online system offers immediate tracking along with the ability to print determinations which include certifications.
Q: If my employee is living outside of PA where do I submit the application?
A: A WOTC application should be submitted in the state where the employer is located.
Q: Do I have to have the paper forms filled out if I am submitting the application on your website?
A: Yes, both the 8850 & 9061 must be filled out, signed, and kept for four years in case of an IRS audit.
Q: On page 1 of the 9061 form in box #10 it asks for the starting wage. Is this hourly or yearly?
A: The correct answer for box #10 on page 1 of the 9061 form is the hourly wage.
Q: I’ve signed into my company profile and see the “Report New Hires” on the blue menu bar at the top. Is this where I submit a WOTC application?
A: No, please go to “My Profile” and then down to the “Tax Credit - Application List” tab and then follow the desk guide to submit a WOTC application.
Q: Where do I send supporting documentation if needed for an application?
A: You may upload supporting documents to the application on the website.
Q: What happens or what can I do if I entered wrong information on my application?
A: You would need to call the Tax Credit Services Office at 800.345.2555 or 717.783.3676 to make any changes.
Q: On the website why can’t I answer questions 14, 14.1 and/or 18 on the 9061 section?
A: You probably answered “Yes” to question 12. Questions 14, 14.1 and/or 18 refer to target groups for SNAP & DCR. These target groups have an age requirement, and your employee is probably too old.
Q: Can a former employee be rehired and qualify the employer for the tax credit?
A: Employers may not request certification on former employees who have been rehired. Rehires are not eligible for the tax credit.
Q: What if my business is operating at a loss?
A: Most tax credits have a carry forward period so you may accumulate the credits in order to use them when you are profitable. For example, the Work Opportunity Tax Credit is applied back one year and forward for 20 years.
Q: How does WOTC work for On-The-Job (OJT) trainings?
A: Since OJT is considered a hire first situation, the WOTC application would have to be submitted within 28 calendar days of the individual beginning work, even in an OJT position. For WOTC purposes, the hours worked while under OJT would count toward the minimum hourly requirement for WOTC, however the qualified wages for WOTC purposes would be calculated starting the moment the employee exited the OJT status. Qualified wages are non-subsidized wages and OJT wages are considered subsidized wages.
Q: What is the benefit to the employee?
A: The tax credit incentive only goes to the employer and isn’t shared with the employee. The purpose of the program is really to help underrepresented individuals gain employment. While it is not a requirement to make hiring, decisions based on WOTC qualification status, the EEOC has issued guidance declaring it is an acceptable practice.
Q: Who determines which credit is to the employer’s best advantage if the employee is eligible for more than one target group?
A: The website will automatically issue a certification for the highest paying target group.
Q: What should I do if I have received a Denial to an application, and feel that this decision is in error?
A: You have the right to appeal an original Denial decision, but your appeal must be (a) based upon NEW supporting documentation that was not provided with the original application or (b) prove that the original Denial was based upon the misinterpretation of eligibility information.
Q: Can Family members qualify for the tax credit?
A: No, the tax credit cannot be claimed for wages paid to relatives.
Claiming the WOTC Credit
The WOTC credit generally is claimed in the tax year in which the new employee is hired. If the employee is hired in 2021 or earlier, and the employer has not received the certification notice from the SWA by the tax filing deadline, it might need to file an amended tax return when the certification notice is issued by the state workforce agency. So, for a 2021 new hire, then yes, the employer would amend their 2021 tax return, even though hours worked during the next 12 months run over into the next year, and they could claim the full 400 hours worked into the next year. However, please keep in mind that, while the WOTC credit is claimed in the tax year in which the new employee is hired, there are also carry forward and carry back provisions that may apply to an employer’s situation. The first 12 months of wages – and the hours worked in that time – normally are used for an employer to qualify to claim the tax credit, since it is the first tax year in which the credit is applied. The questions and answers below will provide more information about whether the credit could also be applied in a later or earlier tax year.
How is tax credit applied?
The credit is usually applied against 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 applying any unused credits, employers should contact the Internal Revenue Service (IRS), or their tax accountant.
For which tax years can the credit be applied?
Employers may claim the Work Opportunity Tax Credit for wages and hours worked in the first year by an employee, except for the long-term TANF recipient, who can earn the employer a tax credit for the first two years of employment. Employers who do not take the full credit amount, because of the tax liability limitation, may carry back the unused credit one year, or carry forward the unused credit 20 years, until all the credit is used, whichever comes first.
What is the limitation on unused credit in a carry-back or carry-over year?
The WOTC, as a component of the general business credit, is subject to the net tax liability limitation of Section 38 of the Internal Revenue Code (IRC), and the carry-back and carry-over rules of Section 39 of the IRC. So, unused WOTC credits that can be taken in a carry-back or carry-over year cannot be more than the tax liability limitation for that year, less any WOTC tax credit that is:
1) earned in the carry-back or carryover year, or
2) claimed in the carry-over year from a year earlier than the current year.
Who can answer my questions about claiming the credit?
Questions regarding how to claim the Work Opportunity Tax Credit on your federal income tax return should be directed to your regional office of the IRS. Employers may also address their questions regarding claiming tax credits by visiting the IRS website or calling the IRS help line at 1-800-829-1040. Additionally, businesses may consult a qualified tax advisor for more information.
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