What is a Work Opportunity Tax Credit?

The Work Opportunity Tax Credit or WOTC is aimed at helping vets get back on the job by helping business large and small.

what is a work opportunity tax credit

Did you know the government can help offset the cost of hiring certain types of veterans in an effort to transition them back into the workplace? The Work Opportunity Tax Credit or WOTC is aimed at helping vets get back on the job by helping business large and small.

The Work Opportunity Tax Credit Helps Veterans

Hiring veterans has become a priority for American business. These workers are disciplined, team-oriented staff members who work well with others or independently. The service they’ve provided to our country has provided them with a wealth of skills, maturity, and leadership. If you think your training program is rigorous, consider surviving boot camp: veterans are ready to face any challenge.  To help business take advantage of the talent veterans provide, the WOTC offer tax credits to get them on your payroll.

WOTC provides tax relief for as many veterans as a business hires. While there are limits to the amount of tax credit you can receive per hire, there are no limits to the number of hires you can make. WOTC offers differing levels of credits that can offset your overall tax liability or your social security contributions, based on the situation of the veteran.

Which Veterans Qualify for Work Opportunity Tax Credits?

Not every veteran is eligible to qualify for the WOTC. The credit is designed to help those veterans who have had difficulty reentering the civilian workforce or those veterans who have been injured in the line of duty. Qualified veterans fall under five specific categories of service members from any branch of the military. A veteran is qualified if they fall under any of these categories:

  • A veteran who is a member of any family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP / Food Stamps) and has done so for at least 3 months during the first 15 months of employment.
  • A veteran who has been unemployed for at least 4 weeks and no more than 6 months during the one year period before their start date.  The weeks do not have to be consecutive.
  • A veteran who has been unemployed for at least 6 months in the one year period before their start date. The months/weeks do not have to be consecutive.
  • A disabled veteran who is entitled to or receives compensation for a service-connected disability who is hired no more than 1 year after their discharge from active duty.
  • A disabled veteran who is entitled to receives compensation for a service-connected disability who has been unemployed for at least six months in the one year period before their start date. The months do not have to be consecutive.

What Credits are Available Under The WOTC?

The WOTC provides business with tax credits to offset the cost of hiring veterans. The amount varies by groups and is based on their salary during the first year they’re employed. There is some fine print (see below), but for business, several levels of tax credits are allowed:

For veterans who work at least 400 hours in their first year: Tax credits are available for 40% of their first year wages up to $6,000.00 or $2.400.00

For veterans who work more than 120 hours but less than 400 in their first year: Tax credits are available for 25% of their first year wages up to $6,000.00 or $1.500.00

For veterans with a service-related disability hired within one year of discharge or release from active duty: Tax credits are available up to $4,800.00

For veterans with a service-related disability who have been unemployed for at least six months prior to hire: Tax credits are available up to $9,600.

What’s the fine print of Work Opportunity Tax Credits?

The 28-day rule

To be eligible for tax credits under the WOTC, businesses must submit an application to the Department of Labor no later than 28 days from the veteran’s start date. Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, must be filed with the company’s state workforce agency within 28 days after the eligible worker begins. These agencies can also help business pre-qualify veterans during the hiring process to assure credits are available.

Limitations on WOTC credits

The credit a business can receive is limited to the amount of business income tax or social security tax owed by the company. For tax-exempt organizations, the credit may be used to reduce the amount of social security tax the company must pay.

Finding Veterans for Your Business

The challenge for many small businesses is finding veterans to hire. There are many non-profit and government resources to help. The Department of Labor has a website where you can post jobs and connect with veterans.  It even provides a skills translator section that helps veterans highlight their experience in language any business can understand. The DOL also sponsors careeronestop.org: this partnership with the American Job Center network lets you find help locally and can even pair you with a Veteran’s Employment Representative to assist with your search.  

Veterans represent a class of workers who have proven ability and are ready and willing to face any challenge.  They bring a wealth of skills, responsibility, and discipline to any company. Hiring veterans is more than a smart choice when it comes to taxes, it’s a smart choice to attract and retain a highly talented group of workers.

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