Work Opportunity Tax Credit (WOTC)
Tax savings and other benefits to employers
The Work Opportunity Tax Credit program reduces the employer's cost of doing business and requires little paperwork. The success and growth of this federal income tax credit for private-sector employers depends on a strong public and private sector partnership. Helping those in need find and retain jobs and gain on-the-job experience benefits all employers and increases America's economic growth and productivity.
Employers qualifying for the Work Opportunity Tax Credit can expect the following tax savings, depending on the target group of the participating employee.
For all Target Groups except for Target Group 2A, 2B, 2C, 2D, & 2E Veterans, Disabled & Unemployed and Target Group 9. Long-Term TANF Recipient the tax credit applies to the first year of employment only. Wages capped at the first $6,000 of qualified wages. The maximum tax credit is $2,400 per new hire.
- Full credit is calculated at 40 percent of first year wages up to $6,000, for a maximum tax credit of up to $2,400; employees are required to work a minimum of 400 hours or more.
- For a partial credit of 25 percent up to $1,500 and it requires a new employee to work at least 120 hours but less than 400 hours.
Tax savings for veteran target groups
- Target Group 2A: Veteran receiving SNAP benefits: Qualified Veteran receiving at least 3 consecutive months of SNAP benefits during the 12 months ending on the hiring date.
- Qualified wages are capped at $6,000 for a maximum tax credit of up to $2,400.
- Target Group 2B: Disabled Veteran DV: A veteran discharged from the military in the last 12 months for a service-connected disability.
- Qualified wages are capped at $12,000 for a maximum tax credit of up to $4,800.
- Target Group 2C: DV Unemployed for 6 months: A veteran discharged from the military in the last 12 months for a service connected disability and has been unemployed for six months prior to the hiring date.
- Qualified wages are capped at $24,000 for a maximum tax credit of up to $9,600.
- Target Group 2D: V Unemployed for 4 weeks: A veteran, regardless of discharge date, that has been unemployed for at least 4 weeks but less than 6 months in the 12 months prior to the hiring date.
- Qualified wages are capped at $6,000 for a maximum tax credit of up to $2,400
- Target Group 2E: V Unemployed for 6 months: A veteran, regardless of discharge date, that has been unemployed for at least 6 months in the 12 months prior to the hiring date.
- Qualified wages are capped at $14,000 for a maximum tax credit of up to $5,600.
Tax Savings for Target Group I. Long-Term TANF Recipient, the tax credit applies to the first two years of employment and is considered a two-tiered tax credit. The wage is capped at the first $10,000 of qualified wages in each year. Maximum credit over the two years is $9,000 per new hire.
- The first year of employment, the maximum credit is $4,000 for full credit which is at 40 percent and requires the new employee to work at least 400 hours for that employer. Partial credit is calculated at 25 percent, up to $2,500 and requires the new employee to work a minimum of 120 hours but not more than 399 hours for the new employer.
- The second year of employment, the maximum credit is $5,000 or 50 percent of $10,000 up to $5,000 when the new employee has worked a minimum of 400 hours or more for the new employer.
Proven benefits to South Dakota employers and employees
The implementation of the Work Opportunity Tax Credit (WOTC) program has proven to strengthen qualifying job seekers' ability to gain employment they otherwise probably would not have obtained. Job Seekers previously considered lacking skills and abilities, having an image associated with welfare benefits or being an ex-felon, or having a disability to employment, simply were not hired because they were considered too much of a risk. The hard to place job seeker can use the WOTC program as a tool to gain employment in what otherwise would be a losing situation.
The WOTC program has been shown to be a win-win situation for both employers and job seekers alike. With poor economic conditions and high unemployment rates across the nation the WOTC program continues to assist employers with a boost to their bottom line with millions of dollars in federal income tax savings to help grow our economy.
Just by hiring a new employee with some type of disability or barrier to employment the WOTC program helped the new employee enter the job market and gain experience, and resulted in 5,076 applications being certified during calendar year 2015. The utilization of the benefits of the WOTC program for those new employees helped save South Dakota employers an estimated $13,498,800 for calendar year 2015.
We need your input to make the Work Opportunity Tax Credits work.
Let us know how we can improve the value of WOTC participants to you and your employees. Please call or visit the WOTC coordinator at your local South Dakota Department of Labor and Regulation office or contact your South Dakota state coordinator.
Other opportunities for employers to help employees
Help your employees make ends meet by offering them the Advanced Earned Income Tax Credit (AEITC). For more information contact the IRS at 800.829.1040 or download publication number 596 from the IRS website.