The Work Opportunity Tax Credit (WOTC)
The most well known of the 100+ employment-based tax incentives we research for you is the Work Opportunity Tax Credit (WOTC). WOTC is a federal employment credit initiative created to increase job opportunities for people who have certain barriers to employment.
The WOTC encourages employers to hire from these specific target groups, and the tax credit is equal to a percentage of the eligible employee’s wages. WOTC qualification “target group” categories:
- SNAP recipients
- Temporary Assistance for Needy Families recipients
- Long-Term Family Assistance recipients
- Supplemental Security Income recipients
- Vocational rehabilitation referrals
- Designated community residents
Employers receive a federal income tax credit that reduces federal income tax liability. The maximum WOTC is typically in the amount of $2,400 per employee (40% of the first $6,000) over the first year of employment. However, the Veterans with a Service-Connected Disability target group does allow for a maximum tax credit of $9,600.
There are also many state employment credits that piggyback on the WOTC, which means even more income tax perks for hiring from the WOTC targeted groups.