How Employers Can Earn WOTC by Hiring from Targeted Groups

July 16, 2020

Work Opportunity Tax Credit is a federal program for employers. Here is what you need to know about hiring from targeted groups.

Image fo a businessman holding his hand out with the word JOB hovering above it, as hands reach out from the right side.

Finding a job can be tough.  Then, getting the job, among dozens of qualified applicants, can be all the more challenging.  Even more difficult still, certain people fall within the description of “targeted groups,” meaning they experience higher barriers to employment than other people do.  In order to address this issue, the government approved a Work Opportunity Tax Credit (WOTC).

Continue reading here to learn more about how your company could be eligible for the Work Opportunity Tax Credit.

Targeted Groups

Country music singer Gary Allan famously sang, “Life ain’t always beautiful…” Most of us can empathize with these lyrics, as we are no stranger to life’s ups and downs.  Still, some people’s life circumstances lead way to countless other obstacles along the way.  Among these obstacles are barriers to employment.  This means, due to something in a person’s past or because of someone’s current life situation, employers are less likely to hire the person for a job.  The government determined people with the following life circumstances to be members of targeted groups:

  • Designated communities residents, including residents of empowerment zones and rural renewal communities, and typically the eligible resident will be 18-39 years old
  • Ex-felons
  • Food stamp or SNAP (Supplemental Nutrition Assistance Program) recipients
  • Summer youth employees from empowerment zones, who are either 16 or 17 years old and are employed between the dates of May 1 and September 15
  • Supplemental Security Income Recipients, who must be 65 years of age or older
  • TANF (Temporary Assistance for Needy Families, or commonly referred to as welfare) recipients
  • Veterans
  • Vocational rehabilitation referrals

Being part of a targeted group can make life’s difficulties that much more challenging.  Therefore, it is important for employers to recognize targeted groups so that they can identify ways to help break the cycle.

Benefits of Hiring from Targeted Groups

Social responsibility silhouettes, indicating the responsibility to hire from targeted groups for WOTC.

If for no other benefit, hiring from among the targeted group has positive social ramifications.  The reason targeted groups have been identified is because there is enough data indicating that people in the targeted groups are disproportionately denied job opportunities.  These individuals may have the necessary skills, and are eager to work, but life circumstances have made employers reluctant to hire them.  So, when employers make a conscious decision to offer a job to someone from a targeted group, it can change the trajectory of that person’s life. 

However, there are definitely additional benefits.  Hiring from among targeted groups can help create a more diverse workplace, which is certainly a good thing.  Diversity at work can increase creativity and innovation, as people from different backgrounds bring their unique experience to the table.   

Related:  Get a Head Start on Taxes

Finally, the Work Opportunity Tax Credit is a way to monetarily incentivize employers, which in the end will help them see the social benefits and increased diversity in their workplace.

Work Opportunity Tax Credit

Now, the Work Opportunity Tax Credit is really quite simple.  Essentially, it is a FIT (Federal Income Tax) incentive for businesses.  Specifically, if a business hires someone from a targeted group, the employer may be eligible to receive a one-time WOTC for the individual.  Companies may hire an unlimited number of employees in order to receive WOTC.

Employers who are part of the WOTC program can claim approximately $9,600 per employee in tax credits per year.  This is dependent upon the wages paid and number of hours the individual works during the first year of employment.  The tax credit ranges between 25-40% of the new hire’s wages.

Work Opportunity Tax Credit Eligibility

The IRS and the U.S. Department of Labor, Empowerment, and Training Administration oversee the WOTC program.  In order to be eligible to participate in the WOTC program, the business must be in the private sector.  Furthermore, the employer must hire the employee from among the targeted groups.  The employee, in turn must work a minimum of 120 hours for the employer to receive a 25% tax credit, and 400 hours to reach the 40% threshold.

Once an employer makes a hire, the employee must complete IRS form 8850, which is the Pre-Screening Notice Form.  The IRS will not consider the form complete if it lacks original signatures.  So, be sure the employee and a company representative complete, sign, and date the form.  The form must be mailed to the IRS within 28 days hiring the individual.  Therefore, be certain the postmark is dated within that time period.  If the employer doesn’t meet either of these conditions, the IRS will deny the form. Consequently, the employer will not be eligible to receive WOTC.

Furthermore, in order to prevent employers from abusing the system, they must also retain the employee for the minimum number of hours. 

In summary the takeaway here is that the employee must be a new hire, the completed 8850 must be mailed within 28 days, and the employer must retain the employee.

Related:  Tax Issues that Can Break Your Heart

Concerns About Hiring from Targeted Groups for WOTC

Image of a businessman celebrating earning WOTC after hiring from a targeted group.

While some things about hiring from a targeted group may leave you apprehensive, try to temper your worry.  In a study by Northwestern University professors, research showed that “employees with a criminal record perform as well or better than those without a record in some job.” 

If you’re wondering why an ex-felon could potentially be a better worker than your Average Joe, there are many possibilities.  Among them, the fact that we are all human and we all make mistakes in life means anyone could have taken a wrong turn along the way.  So, ex-felons are also your Average Joe, so to speak.  Therefore, people who have served time for a crime shouldn’t be poor employees, disproportionately, if they were quality workers in the first place.  Also, ex-felons simply might be thankful that someone is giving them an opportunity when perhaps no one else would.  Hiring someone from a targeted group could literally change the trajectory of that person’s life. So, hopefully the WOTC will be incentive enough for you to help be the change.

It’s a Beautiful Ride

In summary, employers can be eligible to receive Work Opportunity Tax Credit for hiring individuals from targeted groups.  Targeted groups are groups of people who are largely overlooked or denied jobs during the hiring process.  Examples of targeted groups include ex-felons, veterans, and residents of designated communities.

Sometimes we spend so much time focusing on the “Life ain’t always beautiful” part that we forget the best part of the song: “but it’s a beautiful ride.” And a beautiful ride it certainly is, when someone sees potential in us and gives us a chance.

Image of a ferris wheel at a carnival at night.

Subscribe to our newsletter

Get the latest from the world of payroll & HR delivered straight to your inbox!