WOTC Benefits and Value
As a federal income tax credit incentive provided to private sector employers, the Work Opportunity Tax Credit (WOTC) is available to employers who hire and retain individuals from target groups with significant barriers to employment. This tax credit can range from a maximum of $1,200 to $9,600 for each new qualified hire depending on the target group and there is no limit on the number of individuals an employer can hire in order to qualify.
Participating in the WOTC program benefits employers and employees in a multitude of ways. It minimizes a company’s tax liability and allows funding for other important projects together with enhancing cash flow to businesses. In addition to this, WOTC provides an opportunity to historically underemployed groups to rejoin the workforce and thus contribute to their communities and families. Finally, WOTC provides significant savings for the government and taxpayers by getting more people off of public assistance.
The WOTC program was created by the Small Business Job Protection Act in 1996. It was designed to streamline the eligibility process of prior tax credit programs and to facilitate access to jobs for American workers regardless of employers’ size, industry or location.
Since its creation WOTC has been renewed eleven times by the following acts:
- The Taxpayer Relief Act of 1997;
- The Tax and Trade Relief Act of 1998;
- The Ticket to Work and Work Incentives Improvement Act of 1999;
- The Job Creation and Worker Assistance Act of 2002;
- The Working Families Relief Act of 2004;
- The Tax Relief and Health Care Act of 2006;
- The Small Business and Work Opportunity Tax Act of 2007;
- The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010;
- The American Taxpayer Relief Act of 2012;
- The Tax Increase Prevention Act of 2014; and
- The Protecting Americans from Tax Hikes Act of 2015.
One of the most important things that marks WOTC’s history is the constantly changing list of target groups whose modifications occurred as a result of changing needs in the country’s employment landscape. Compared to the original list of WOTC target groups, some of them still remain, some of them were modified to be in accordance with legislation, while some of them no longer exist.
Nowadays, employers can hire eligible employees from the following target groups for WOTC:
- Qualified IV-A Recipient;
- Qualified Veteran;
- Designated Community Recipient (DCR);
- Vocational Rehabilitation Referral;
- Summer Youth Employee;
- Supplemental Nutrition Assistance Program (SNAP) Recipient;
- Supplemental Security Income (SSI) Recipient;
- Long-Term Family Assistance Recipient;
- Qualified Long-Term Unemployed Recipient.
Section 142 of the Protecting Americans from Tax Hikes Act of 2015 included two major changes for the WOTC program:
- The credit was extended for five years, including employees hired through December 31, 2019. This applies to any individual who began work for the employer after December 31, 2014, as the previous WOTC extension expiration date.
- For employees hired after December 31, 2015, the Act added a new targeted employee group: long-term unemployed individuals. New hires qualify for this category if they received State or Federal unemployment compensation during any part of a period of unemployment lasting at least 27 consecutive weeks.
While the WOTC has historically been extended for one to two years, the last five-year extension provided employers with a higher degree of certainty related to this program allowing them to claim WOTC for new hires with increased efficiency. Furthermore, WOTC’s benefits were extended to millions more potential applicants in search of a job due to a new target group of the long-term unemployed.
As a cost effective hiring program and a highly effective way of reducing government dependence and spending on both the federal and state level, WOTC is consistent with current anti-poverty, pro-work administration. It is difficult to predict what is going to happen after December 31, 2019, but the fact remains that WOTC benefits outweigh the costs for both state and federal governments given that it reduces poverty, provides historically underemployed workers with an opportunity to get off of federal aid programs, and increases private sector employment.
How to Maximize WOTC Extension
The latest extension of the WOTC program presented employers with an opportunity to capture missed tax credits, but with the extension period slowly coming to its end, it is high time for them to start taking advantage of WOTC in order to achieve maximum tax savings.
Labor intensive administrative complexities can make it difficult for employers to gain the full benefits of WOTC. However, with technological innovations and electronic data exchange, WOTC screening and processing becomes significantly more efficient and allows employers to generate considerably more WOTC credits. Automated WOTC process ensures higher application completion rate, secure online retention of completed and signed documents that can be easily accessed, and a streamlined and organized process that allows businesses to get the best results in a timely manner.
WOTC does not only help individuals and businesses, but it also results in huge savings to the government and taxpayers. Given its efficiency, it is likely that businesses will be able to take advantage of this program even after December 31, 2019. Therefore, it is time for employers to embrace advancements in automation and replace an outdated, manual process with electronic solutions designed to reduce staffing, compliance mistakes, and paperwork while maximizing tax credit program benefits.