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WOTC Benefits

Published: June 29, 2023 by Tiffany Wallace

The Work Opportunity Tax Credit (WOTC) has been in existence since 1996 and continues to function as a federal tax credit program designed to facilitate the employment of individuals with not as much job opportunity who want to work and reward employers willing to hire them. The latest extension of the program envisaged its functioning until the end of 2025, but its longevity already proved to be a powerful incentive creating a win-win outcome for employers, employees, as well as the community, thus yielding numerous benefits for everyone.

WOTC Benefits for Community

The WOTC aims to incentivize workplace diversity and facilitate access to good jobs for American workers and it does so by focusing on vulnerable populations. Those are defined as target groups, consisting of individuals who face constant employment barriers.

Ten categories of WOTC-eligible target groups include:

  1. Unemployed Veterans;
  2. Temporary Assistance for Needy Families (TANF) recipients;
  3. Food Stamp (SNAP) Recipients;
  4. Designated Community Residents;
  5. Vocational Rehabilitation Referrals;
  6. Ex-Felons;
  7. Supplemental Security Income Recipients;
  8. Summer Youth Employees;
  9. Long-Term Family Assistance Recipients; and
  10. Qualified Long-Term Unemployment Recipients.

By assisting these individuals, the WOTC program decreases the amount federal and state governments spend on entitlements by billions of dollars. Also, the economic dependency of these recipients is turned into self-sufficiency and their communities see stability and progress. Thus, the overall economy gets a lasting boost as a result of the reduction of the unemployment rate and the dependency on government assistance programs funded by taxpayer money.

WOTC Benefits for Employees

Many members of the eligible WOTC target groups may use the program as a way out of the vicious circle of poverty and unemployment. Due to circumstances often beyond their control, it is difficult for them to get a job and even harder to keep it, let alone advance, develop new skills, and obtain certifications. Thanks to WOTC, their outlook can change, as they become self-reliant, earn a steady income and become contributing taxpayers.

WOTC Benefits for Employers

All employers qualify for participation in the WOTC program, regardless of the size and type of business they run. There is no limit to the number of hires who can come from the WOTC eligibility pool, and the tax credit is a dollar-for-dollar reduction to their tax liability. The only obstacle for employers preventing them from taking advantage of the program is the possible lack of awareness and, in some cases, preconceived notions that a program is difficult to manage properly and could require additional resources.

Reducing Federal Tax Liability

By hiring individuals from target groups who meet specific criteria, an employer can receive from $2,400 to $9,600 in maximum credit per new hire. The credit is available if the employee worked for at least 120 hours, and, to be able to claim the full credit – 400 hours. In general, the amount of credit depends on the type of WOTC group hired, the wages paid, and the number of hours worked in the first year of employment.

WOTC benefits can significantly reduce an employer’s corporate federal tax liability, and in some cases, this reduction may lead to its complete elimination. Even the tax-exempt organization can apply for credit as it can be carried back one year and forward on future tax returns for up to 20 years.

Increasing Cash Flow and Profitability

The cost of doing business these days never stops increasing, and hiring WOTC-eligible employees is one way to keep these costs in control. By simply reducing their tax liability, employers can significantly increase cash flow – by up to 40%. If the costs of hiring an employee from the WOTC pool are compared to those for an employee outside of it, the result is a huge gap in profitability, going up to 80% in favor of the former group. These figures make WOTC benefits for employers clearer and show how the WOTC credit helps them create conditions to improve their margins and sustainability.

Thriving with WOTC Workforce

There may be some reluctance among employers to hire through WOTC stemming from the fear that their dedication would be short-lived and they could underperform, due to lack of formal training. The practical experience shows differently – the retention is almost the same, and the performance and work ethics, with veterans, for instance, proved to be exemplary in most cases. 

Depending on the industry, about 20% of new hires qualify for credit. Some industries may experience an even higher rate of qualification, and because of manual labor shortages, this rate is likely to go up.

There is no restriction on the number of new hires a business can employ based on their WOTC eligibility. Whether it is 10 or 10,000 new employees, their WOTC certification equally contributes to piling up the tax credit a company will be able to claim.

Use of Technology Maximizes WOTC Benefits for Employers

Participation in the WOTC program brings many benefits but it also comes with many challenges. These could be looming legal deadlines and complex forms, tracking of the employee’s hours and wages, dealing with screening documentation and, of course, calculating tax credits. In order to implement the program correctly, a company has to employ substantial resources. However, taking advantage of the significant tax break offered through the WOTC should be a priority and a decisive factor in making an effort and keeping up with the program requirements.

An easy way to simplify the WOTC management and administration is to automate the entire process. An online platform can be used from start to finish of the WOTC screening, hiring, record keeping, and credit capturing. In this way, a cumbersome, slow, time- and paper-intensive process can be turned into an easy, one-click-of-a-button solution that takes foolproof care of requirements, deadlines, and compliances.

Automated tax credit management is the sure way to maximize the WOTC benefits for employers and bring new possibilities to develop and thrive.

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