Arcoro’s Partner, Arvo, answers the 10 most common WOTC questions from business owners.
The Work Opportunity Tax Credit (WOTC) program is a valuable and often underutilized federal employment tax credit program designed to reward businesses who hire and employ disadvantaged job seekers or those facing barriers like veterans and those with physical or mental disabilities. Understanding the requirements for claiming and mastering the techniques for maximizing WOTC benefits sometimes includes a learning curve. Use this list as a primer if you’re just beginning with WOTC, or as a review to ensure your WOTC program is ship-shape.
1. How do I know if my company qualifies for WOTC?
Both for-profit and non-profit businesses can qualify for WOTC. The key is that you hire employees. It doesn’t matter whether you hire one or 10,000. There is no limit.
For-profit businesses can claim credits for hours worked by employees from all WOTC target groups. Non-profits, on the other hand, can only claim credits for hours worked by qualified veterans.
2. Which employees qualify for WOTC?
Employees must meet certain target group eligibility to qualify for WOTC. Of course, some exclusions apply. For instance, business owners and their family members do not qualify for WOTC, even if they are from a target group. Additionally, only new hires qualify. Re-hired employees, even if they were employed by the company long ago, don’t qualify. Finally, employees who received 1099, or other independent contractors, do not qualify for WOTC.
3. What are the WOTC categories?
To be eligible for the WOTC, employees must fall into one of the following nine categories.
- SNAP recipients (food stamps)
- Short-term TANF recipients
- Long-term TANF recipients
- Veterans
- SSI recipients
- Long Term Unemployed
- Designated Community Resident
- Qualified Summer Youth Employee
- Vocational Rehabilitation Referred
4. How do you earn WOTC credit?
To earn WOTC credits, employees must be certified by the relevant state workforce agency. The certified employee must work at least 120 hours. At that point, 25% of the gross wages paid to the employee can be claimed as WOTC credit. Once the employee reaches 400 hours, the credit increases to 40% of all gross wages paid. Maximum credit limits exist for each WOTC category.
5. How long do you have to capture the credit on an employee?
For employees who fall into eight of the nine WOTC categories, businesses have one year from the employee’s hire date to claim the credit. When it comes to the Long-term TANF recipient category, businesses have two years from the employee’s hire date to claim the credit.
6. How many employees can qualify for WOTC?
There is no limit to how many employees can qualify for WOTC per year.
7. When does your WOTC credit become official?
A WOTC credit becomes claimable when the appropriate state workforce agency (SWA) certifies that the newly hired employee belongs to a WOTC category. The SWA provides a certification letter to the business. If the employee is not certified, the SWA will issue a denial letter.
After the WOTC-certified employee works at least 120 hours, businesses are eligible to claim WOTC credits for that employee when filing their annual tax return for that year.
8. How long do you have to use your WOTC credit?
As a general business credit, WOTC can be carried back one year or carried forward up to 20 years.
9. How do you claim your WOTC credit?
To claim WOTC credits, file Form 5884 along with your annual tax return. Or, hire a vendor like Arvo Tech to handle it for you!
10. What should you look for in a WOTC vendor?
Consider these five important aspects when selecting the best WOTC vendor.
- Technology capabilities. WOTC vendors should offer technology such as a WOTC eligibility survey that can seamlessly integrate with your ATS, website, or other hiring process. They should also offer intuitive and responsive tech tools like a WOTC dashboard or other reporting interface to provide real-time metrics and analytics.
- A dedicated state workforce agency (SWA) team. Managing communications with SWAs can be tricky and time-consuming. The best WOTC vendors cultivate trusting relationships with SWAs on your behalf in order to meet deadlines, challenge denials, ensure proper documentation from other government agencies, and more.
- Real-time data and reporting. In this day and age, WOTC vendors are behind the curve if they can’t provide information in real time to help businesses make impactful decisions in order to maximize their WOTC credit.
- A dedicated client success specialist. Technology and automation are essential, but a quality WOTC vendor should also provide a human being dedicated to understanding a business’s WOTC program inside and out. Dedicated client success specialists can m key performance indicators to ensure that you are reaching an optimized WOTC program where you are receiving the most credit possible for your account.
- WOTC training and education. The best WOTC vendors will train and educate employees so they understand how WOTC works, which increases the effectiveness of the execution of the program.
WOTC Transforms Bottom Lines
Although the WOTC program includes many moving parts and can take time and commitment to master, businesses who invest in it are paid back handsomely. Arcoro’s partner, Arvo Tech, has helped hundreds of businesses over the last decade-plus improve their cash flow by up to 40% through WOTC. Time spent on WOTC is time well spent.
Contact us to learn more about Arcoro and Arvo and how we can help you navigate beneficial federal programs.
