How Does The Wotc Tax Credit Work

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How Does the WOTC Tax Credit Work?

The Work Opportunity Tax Credit (WOTC) is a tax credit that encourages employers to hire individuals from certain target groups. These target groups include individuals who are unemployed, veterans, ex-felons, and people with disabilities. The WOTC tax credit can be claimed for up to 24 months, and the amount of the credit depends on the number of hours worked by the employee and the employee’s target group.

Eligibility Requirements

To be eligible for the WOTC tax credit, employers must meet the following requirements:

  • Be a for-profit business or tax-exempt organization
  • Hire an employee who is a member of a target group
  • Pay the employee wages
  • Complete and submit Form 8850, WOTC Certification

Target Groups

The following individuals are members of target groups for the WOTC tax credit:

  • Unemployed individuals who have been unemployed for at least 27 weeks in the past year
  • Veterans who are within 1 year of being discharged from the military
  • Ex-felons who have been convicted of a felony within the past year
  • People with disabilities who are certified by a government agency

Documentation

Employers must maintain certain documentation to support their WOTC tax credit claim. This documentation includes:

  • Form 8850, WOTC Certification
  • Proof of the employee’s eligibility
  • Proof of the wages paid to the employee

How to Claim the Credit

Employers can claim the WOTC tax credit by completing Form 8850, WOTC Certification, and attaching it to their federal income tax return. The IRS provides instructions for completing Form 8850 on its website. Employers can also use the IRS’s online WOTC calculator to estimate the amount of the credit they can claim.

Conclusion

The WOTC tax credit is a valuable incentive for employers to hire individuals from certain target groups. By meeting the eligibility requirements and following the documentation and claiming procedures, employers can take advantage of this tax credit and save money on their taxes.

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