Work Opportunity Tax Credit

Tom Hofstad

The Work Opportunity Tax Credit, or WOTC for short, is a somewhat complicated tax credit.  Basically, a tax credit exists when a business pays wages to employees that are part of a qualified group.  The obvious question is what makes an employee part of the qualified group?  There is a list of 9 different groups that could qualify.  They include qualified veterans, qualified ex-felons, SNAP recipients, SSI recipients, summer youth employees, vocational rehabilitation referrals, designated community residents, TANF recipients, and long-term family assistance recipients.

If you think about the people that fall into those groups you are going to find they are often low income and in need of the opportunity to work because they have some kind of disadvantaged history which makes it difficult for them to find work.  So, the credit is an incentive for businesses to hire folks in those categories.

In order to qualify for the credit you need to make sure the state agency has certified the employee as being in one of those groups before you hire them.  Once you have the documentation, the credit is calculated depending on how many hours the employee works and the amount of wages the business pays the employee.  The credit is one of the general business credits which can either offset C Corporation income or can flow through to the shareholders if the business is a partnership or S Corporation. These credits were scheduled to expire in 2018 but the new tax bill has preserved these credits through 2019.


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