Unlock Tax Savings for Your Business – Work Opportunity Tax Credit (WOTC)

Matt Harper

Jan 03, 2024

As we turn the page to a new tax year, now is the time to start planning for tax savings opportunities for tax year 2024. The Work Opportunity Tax Credit (WOTC) is one potential opportunity. This federal tax credit is intended to incentivize employers to hire individuals from specific targeted groups. The WOTC provides a tax credit of up to $2,400 and is calculated as 40% of the first $6,000 of wages paid to eligible employees in their first year of employment. This credit does not apply to employees who are rehired. There are also limitations if the employee works less than 400 hours.

Do you hire individuals from certain targeted groups?

You may be able to claim the Work Opportunity Tax Credit if you hire employees from the following groups:

An individual who is a member of a family receiving TANF benefits
Qualified Veterans
Qualified Ex-Felons
Designated Community Residents (NOTE – there are multiple designated communities in the Greater Cincinnati Area)
Qualified Summer Youth Employees
Member of a family receiving SNAP benefits
Recipients of Supplement Social Security Income
Recipients of Long-Term Family Assistance
Qualified Recipient of Long-Term Unemployment

The groups above are specifically defined by the IRS. This link gives more information on how the IRS has defined these groups.

How to claim the credit?

Claiming the WOTC begins during the hiring phase. Start by integrating a standardized form into your pre-hire screening process to allow the job candidate to indicate if they are a member of one of the targeted groups listed above. Upon identifying eligibility based on the candidate’s responses, this form and supporting documentation need to be filed with your designated state workforce agency. In Ohio, this submission goes to the Ohio Department of Job and Family Services. Subsequently, the state issues a certification validating the job candidate’s qualification within a targeted group. Finally, to claim the credit, your tax preparer will need to include Form 5884 with your federal tax return.

Other Important Information

It is worth noting that this credit must be applied for on a prospective basis. In other words, you can’t claim this credit for existing employees. Also, to claim the credit, you must file the appropriate documentation with your state workforce agency on a timely basis (within 28 days of hire).

To ensure you have an appropriate plan that aligns with the necessary requirements and deadlines, we recommend you seek guidance from a tax professional.