The Work Opportunity Tax Credit

  • Robert S. Thomas,
  •   Taxation
  •   Comments Off on The Work Opportunity Tax Credit


If you own a business, it is wise to look for ways to save money, such as looking at opportunities for tax deductions and credits. One such opportunity that has been utilized by businesses nationwide is the Work Opportunity Tax Credit (WOTC). Originally created in 1996, this is a federal income tax credit meant to incentivize employers to hire employees from specific categories of people. These categories are people designated by Congress because of a statistically higher unemployment rate or because of a reliance on government benefits.

According to the Department of Labor, the WOTC “helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability.” The tax benefits that a business can realize using this credit are substantial, and it is estimated that employers have claimed over $1 billion in tax credits.

What Are the Eligible Groups?

Military Veterans — Members of our Armed Forces serve our Country with honor. Unfortunately, many veterans have difficulty transitioning into the workforce after their service. A veteran on SNAP food stamps may be eligible for up to a $2,400 tax credit. Further, a veteran who has a service-related disability can qualify for up to $9,600, and an unemployed veteran may qualify for a $5,600 credit.

Long-Term Unemployed Persons — A person who has been unemployed for not less than 27 consecutive weeks and has collected unemployment benefits may qualify for a $2,400 tax credit.

Certain Summer Youth Employees and Community Residents living in “Empowerment Zones” — The government designates certain communities as Empowerment Zones (EZ) based on statistical wealth, unemployment rates, and rates of government benefit utilization. Hiring a 16 or 17 year old during the summer may qualify for up to $1,200 and a resident living in an EZ may qualify for a $2,400 credit.

Food Stamp or Temporary Assistance for Needy Families (TANF) Recipients — For individuals who have been on food stamps or receiving TANF for a requisite amount of time prior to employment, an employer may qualify for a $2,400 tax credit. Long-term TANF recipients, who have received benefits for over two years, may qualify an employer for a $9,000 credit.

SSI Recipients — An employer that hires a person who has been on SSI within 60 days of their hire may qualify for a $2,400 tax credit.

Ex-Felons — A person who has been convicted of a felony may qualify for up to $2,400 in credit if they are hired within a year of their release from prison.

Vocational Rehabilitation — An individual with a disability who isreceiving qualified rehabilitation services may qualify for $2,400 in tax credit.

How is the Credit Calculated?

The tax credit first depends on the eligible group the employee falls within. Then, the credit is calculated based on the new employee’s length of unemployment, pay, and number of hours worked in their first year.

Contact a Tax Attorney

If you own your own business, it is in your financial interest to learn about the many IRS tax incentives available to you. Call The Law Offices of Robert S. Thomas. I have been a tax lawyer for over twenty years and can offer you customized advice based on your business and your goals. I have a Master of Law Degree (LLM) in Taxation, and am licensed to practice in the United States Tax Court. Contact The Law Offices of Robert S. Thomas at 847-392-5893 to schedule an initial consultation or visit our website today.

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