 | | | Work Opportunity Tax Credit:
Frequently Asked Questions | | | | | | | | |
1) What is the Work Opportunity Tax Credit (WOTC)? |
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The Work Opportunity Tax Credit (WOTC) is a federal tax program designed to encourage employment of people who are disabled, have limited incomes, or face other challenges. Employers who hire individuals in specified target groups are eligible for a federal tax credit under the program. Businesses taking advantage of the WOTC may save as much as $2,400 per qualifying employee. In some cases, the savings may be as high as $9,000 per employee.
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2) Which groups have been targeted for the Work Opportunity Tax Credit (WOTC)? |
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The Work Opportunity Tax Credit (WOTC) has nine targeted groups. Employers may qualify for a tax credit if they hire a worker who fits into one of these nine groups:
- CalWORKs (TANF) recipients.
- Veterans who are receiving Food Stamps.
- Ex-felons hired no later than one year after conviction or release from prison
- Designated community residents, aged 18-39, who live in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community.
- Vocational Rehabilitation and Ticket to Work Employment Network referrals.
- Summer youth, aged 16-17, who live in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community and have not previously worked for the employer.
- Food Stamp recipients, aged 18-39.
- Recipients of Supplemental Security Income (SSI).
- Long term Temporary Aid to Needy Families (TANF) recipients.
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3) How much of a tax credit can my company or organization receive for hiring an employee from a targeted group? |
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If your business hires an employee in one of the first eight target groups, you can claim a tax credit of up to $2,400. If your business hires an employee in the ninth target group (long-term Temporary Aid to Needy Families recipient), you can claim up to $9,000 in tax credits over two years.
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4) Does my employee have to work a certain number of hours for my business to qualify? |
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Yes. If you hire an employee in one of the first eight target groups, that employee must work at least 120 hours within one year for your business to qualify for a 25% tax credit. If they work more than 400 hours, your business can qualify for a 40% tax credit.
If you hire an employee in the ninth target group (long term Temporary Aid to Needy Families recipient), you could claim a 40 percent tax credit on the first $10,000 you pay that person during their first year of employment, and a 50 percent tax credit on the first $10,000 you pay them in the second year.
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5) Can my business file more than one WOTC per year? |
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Yes. If your business were to hire ten people who meet the criteria for one of the WOTC target groups, and all ten work at least 120 hours during their first year, your business could claim ten separate tax credits for the year.
If the tax credit for each employee was $2,400, your business could save $24,000 in federal income taxes.
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6) What if my business hires an employee who meets the criteria for more than one target group? |
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You can only claim one WOTC per qualifying employee, even if the employee fits into several target groups.
If you have an employee who meets the criteria for target group 9 and one of the other eight target groups, you must choose which tax credit to take.
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7) Can my business claim a Work Opportunity Tax Credit (WOTC) year after year for the same employee? |
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No. For the first eight target groups, your business can claim a tax credit for the year of employment. For target group 9 (long-term TANF recipients), you can claim a tax credit for the first two years of employment.
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8) How does my business apply for the Work Opportunity Tax Credit (WOTC)? |
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Once you’ve determined that you have an eligible employee, you need to complete the necessary forms and submit them to the Employment Development Department’s WOTC Center.
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9) When should my business submit the forms to apply for a WOTC? |
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Your WOTC application forms must be postmarked within 28 days of the qualifying employee’s first day of work.
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10) Can my business qualify for a WOTC if I hire a relative who fits into one of the target groups? |
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No. Certain employees will not qualify your business for a WOTC, even if they fit into one of the nine target groups. This includes relatives, dependents, and any employee you rehire.
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