While companies may know that the Work Opportunity Tax Credit can grant them a large tax benefit for hiring qualifying employees, many of them fail to conduct WOTC screening and identify WOTC candidates.
Screening, hiring, and retaining WOTC qualiﬁed employees may bring businesses a federal tax credit ranging from $1,500 to $9,600 per qualiﬁed individual, based on the certiﬁed WOTC target group. However, this is oftentimes a complicated and time-consuming procedure for both applicants and employers. On the other hand, automating this process can help employers optimize WOTC screening, save them time and resources, and increase their ability to benefit from federal tax credit programs.
The Goal of the Work Opportunity Tax Credit
The mechanism behind the Work Opportunity Tax Credit is to effectively subsidize the cost of hiring and employing members of WOTC target groups, which is different than the goal of creating new jobs associated with other employment subsidies. Thus, this program promotes the hiring of individuals within target groups, who usually face challenges when trying to secure employment due to limited skills or work experience.
The cost‐effectiveness of the WOTC program is quite high because subsidies are only paid when targeted individuals are placed in jobs. Still, millions of dollars in available tax credits go unclaimed each year due to incomplete or inefficient WOTC screening processes.
WOTC Certification and Screening Process
Before employers can claim a Work Opportunity Tax Credit, they need to receive certification from a State Workforce Agency (SWA) that the new hire meets the qualifications of one of the target groups.
To do so, they have to use IRS Form 8850 and one of two forms from the Department of Labor. The first one, ETA Form 9061, or the Individual Characteristics Form (ICF), provides specific information about how an applicant answered the WOTC questionnaire. The second, ETA Form 9062, is the Conditional Certification Form for applicants who have been pre-screened for WOTC by an SWA. Both forms should accompany Form 8850 submissions.
Employers use Form 8850 to pre-screen and to make a written request to the SWA of the state in which their business is located to certify an individual as a member of a targeted group for purposes of qualifying for the credit. They have 28 days from a qualified employee’s start date to send Form 8850, also known as the Pre-Screening Notice and Certification Request for the WOTC, to the applicable SWA.
The first page of Form 8850, which has to be completed by the applicant on or before the day of the job offer, outlines the conditions that someone from one of the target groups has to meet in order to qualify for the program. This part of Form 8850 is the WOTC questionnaire that collects information about any military service, participation in government assistance programs, recent unemployment and contains other targeted questions.
The second page is intended for employers. This is where they provide their business contact information and the applicant’s key employment-related dates. Both the applicant and the employer have to sign Form 8850 no later than the date for submitting the form to the SWA.
In case that a tax-exempt organization hires a qualified veteran, they need to report the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.Use this comprehensive guide to help you understand the necessary paperwork and requirements for claiming WOTC credits as well as how to simplify WOTC screening and make the entire hiring process a more pleasant experience.
Common Challenges within WOTC Screening and Processing
Many employers try to take advantage of WOTC, but the labor-intensive workflow of manual paper applications they are using prevents them from fully maximizing their advantage.
One of the main challenges for candidates, particularly for those whose first language may not be English, is filling out a WOTC questionnaire. Often, employees will opt-out of completing the WOTC screening questions or they choose to not disclose the necessary information, whether because of a language barrier, user-experience, or timing. This leads to a missed opportunity for the employer to gather the information necessary to qualify for a tax credit.
While WOTC is designed to be compatible with federal anti-discrimination requirements and at no point requires knowing the applicants’ race, color, religion, gender, or orientation, many potential hires may still feel uncomfortable providing the answers during WOTC screening. Therefore, the WOTC questionnaire should always include clear language about it being voluntary and used only to determine if applicants qualify for this federal program.
Another critical challenge is the timing of WOTC screening. Necessary documents have to be completed within 28 days of an employee being hired to be eligible for tax credit consideration. However, the allotted time of 28 days may pass without employers being able to receive the credit because they:
- cannot track down the candidate to complete the necessary documents,
- miss an opportunity to obtain required employee signatures within 28 days, or
- fail to locate the physical documents to be filed with the respective SWA.
These and other WOTC screening challenges can be solved with an automated system that is compatible with the WOTC process. To simplify filling out a WOTC questionnaire, the questions can be tailored to help applicants navigate them easily so that employers can collect information indicating which candidates are likely to be WOTC qualified. Thus, employers using an automated platform with an integrated WOTC screening process can see an increase in tax credits simply because the applicants are able to answer the right questions and finish their applications. As a result, they can save time and improve the questionnaire completion rate, and a higher application completion rate means more opportunities for tax credits.
Furthermore, employers can replace the labor-intensive nature of manual paperwork and store data in a centralized location by allowing employees to complete the documentation online as part of the onboarding process. In addition to this, electronic signatures make signing the necessary documents even easier. Consequently, the completed and signed documents are kept securely online and can be easily accessed, and employers can expect their WOTC tax credit certifications to increase.
Simplifying Participation in the Work Opportunity Tax Credit Program
Any business, regardless of size or industry, may be eligible to claim tax credits under the WOTC program. Since there is no limit to the number of individuals that employers can hire, there is also no cap on the number of credits that they can claim. Even though there are complexities related to the Work Opportunity Tax Credit processing, the benefits that employers can experience with this program are worth the effort.
Given that proper software can easily evaluate tax credit eligibility and track each qualified applicant through WOTC screening, certification, and credit calculation to deliver maximum tax credit benefits, there is no reason for employers to avoid taking part. Automated WOTC management significantly improves WOTC screening compliance rates and simplifies data collection. Besides helping applicants complete the form quickly and correctly, employers can stay compliant with changing tax credit laws, eliminate errors, avoid penalties, and meet necessary deadlines.