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What Is The Work Opportunity Tax Credit

Frequently Asked Questions About The Work Opportunity Tax Credit

How does the WOTC work?

The Work Opportunity Tax Credit offers tax benefits for businesses that hire employees that are considered by the IRS to be in “targeted” groups. These groups include veterans, recipients of social services, and formerly incarcerated individuals, amongst others. The idea is to provide increased opportunities for these groups by incentivizing businesses with tax credit subsidies for hiring them.

What is a Work Opportunity Tax Credit questionnaire?

The Work Opportunity Tax questionnaire is the first page of IRS Form 8850. It is used to determine whether the employee in question is eligible for the WOTC program. The questionnaire asks for basic information about the applicant regarding unemployment, military service, and more.

How Are WOTC Credits Calculated?

WOTC credits are calculated by three factors: hours worked, category of employee, and total wages. For employees that work 400 hours or more, employers can claim 40% of their wages up to $2,400. As for employees that work between 120 and 399 hours, the employer can claim 25%.

What is the maximum WOTC credit?

The maximum WOTC credit employers can claim is $9,600 dollars, but this is for highly-specific circumstances. This only applies if a business hires a disabled veteran who is receiving compensation for a service connected disability and has been unemployed for at least 6 months. A typical credit is capped at $2,400.

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