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Work Opportunity Tax Credits Can be a Win-Win for Employers Facing Staffing Shortages by Karen A. Lake, CPA

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Posted on September 16, 2021 by Karen Lake

Despite a strong economic recovery since the start of the COVID-19 pandemic, businesses of all sizes are struggling to find and hire ample staff to keep up with demand. For some, relief has come by expanding their pool of potential employees to include veterans, ex-felons and other individuals who typically face significant barriers to employment. When businesses hire workers from these targeted groups, they will also qualify for a valuable federal tax credit of up to $9,600 per qualifying employee.

What is the Work Opportunity Tax Credit? 

The Work Opportunity Tax Credit (WOTC) incentives businesses to hire individuals who traditionally have been overlooked in the hiring process. This includes people with physical or mental disabilities, extended periods of unemployment, and recipients of government benefits.

Eligible new hires must work a minimum of 120 hours in the first year of employment for the employer to qualify for the credit, which can be between $1,200 and $9,600 per employee, depending on workers’ classifications and the actual number of hours they work. Employers may claim the credit against their federal income tax liabilities. Any unused credits in a particular year may be carried back one year and carried forward for 20 years.

Barring any further congressional action, the WOTC is available to qualifying taxpayers through the end of 2025.

What is Meant by WOTC Eligible Employees?

There is no limit to the number of WOTCs employers may claim. Generally, the more WOTC-qualified employees a business hires, the more savings they can yield.

How Can my Business Claim WOTCs?

 Employers must request and receive from a state workforce agency certification that employees qualifying for the WOTC are in fact members of an eligible target group. The request must be made within 28 days of the employee’s first day of work unless the employee or employer qualifies for an exception.

For example, recent IRS guidance extends the 28-day certification request deadline for employers that hired members of the Designated Community Resident targeted group or the Qualified Summer Youth Employee targeted group between Jan. 1, 2021, and Oct. 8, 2021. The extended deadline for eligible employers to request certification from a designated local agency (DLA) is Nov. 8, 2021.

About the Author: Karen A. Lake, CPA, is a state and local tax (SALT) specialist and an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.