Tax Credit

Leveraging the Work Opportunity Tax Credit (WOTC) to Create Opportunities for Overlooked Workers and Employers

Barriers to success at work come in many shapes and sizes, ultimately slowing opportunities for workers and employers alike. Many employers want to do more to alleviate barriers, but with rising costs in both goods and services, it is often too costly to change policies without some sort of financial offset. Many people who are overlooked or underemployed, including “hidden workers,” are either waiting for the right opportunity or have left the job market entirely, making it even more essential to address barriers that will unlock access to more job seekers.  

While there are many government incentives available to employers, the public workforce system can feel like a churning sea of unmapped waters. Workmorphis helps employers navigate this essential policy area by connecting them with the resources they need.

The federal Work Opportunity Tax Credit (WOTC) was created to help alleviate some of the cost burdens faced by employers when hiring by creating savings that they can reinvest in their employees. This means the WOTC has the added benefit of creating economic mobility for workers from non-traditional pathways.

What is the WOTC?

Established as a temporary program in 1985 and made permanent by a bipartisan bill in 2019, the WOTC was designed to incentivize employers to consider overlooked recruits from non-traditional employment pathways. Reports such as this from the National Conference of State Legislatures (NCSL) have found that WOTC not only “appears to be among the most effective—for some analysts the most effective—labor market policy for getting individuals into jobs,” but also that the program may pay for itself and then some because of economic gains from employing overlooked workers and low costs. However, there is some evidence that the program is underutilized with some analysts arguing that the government should implement more direct employment subsidies to encourage employer buy-in.

Regardless, the WOTC is an incentive that your company can leverage right now to both attract new talent and create economic mobility for workers and their families. Populations who may be eligible for WOTC include:

  • Veterans
  • Long-term unemployed workers (more than 27 consecutive weeks)
  • Formerly incarcerated and returning citizens, and/or those convicted of a felony
  • Individuals referred from a rehabilitation program
  • Persons with disabilities
  • Summer youth employees
  • Temporary Assistance for Needy Families (TANF) recipients
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Residents of designated rural or “empowerment” zones

Please note that there may be additional qualifications for these individuals to be WOTC eligible. For more on exactly what makes an individual “qualified,” check out this comprehensive FAQ from the Internal Revenue Service (IRS). Contact your state coordinator (details below) if you still have questions.

I’m an employer. How does the WOTC grow my workforce? What do I need to know for compliance?

WOTC is a non-refundable tax credit, meaning the incentive reduces your federal tax burden rather than paying you directly. An employer can receive a tax credit worth 25% to 40% of an employee’s wages in their first year of employment for a total incentive of up to $9,600. The average incentive per employee is around $2,400.

Awards are calculated on a sliding scale based on the wage of the individual hired and retained, the number of hours worked, and the target population from which the worker identifies. As a result, this credit alleviates some of the risk associated with new hiring, thereby allowing employers to offer more competitive wages and benefits.

Employers have 28 days from the new hire’s start date to file. Retroactive applications are forbidden, so it is important to plan in advance and build paperwork into the new hire packet before onboarding. If you’re concerned about compliance or anti-bias laws, the Equal Employment Opportunity Commission (EEOC) has assured employers that using the necessary IRS Form 8850 will help you avoid running afoul of any laws.

Work alongside your HR team to ensure that you are capturing the necessary information while keeping paperwork federally compliant and inclusive.

I’m an overlooked worker entering or reentering the workforce. What does the WOTC look like for me if I find a job?

If your new employer chooses to apply for WOTC, they can offer you paperwork to confirm your eligibility. Per federal guidance, this paperwork should include the IRS Form 8850. By law, the employer cannot compel you to fill out the paperwork and all disclosures are voluntary. However, case studies have shown that employers who use WOTC often reinvest the savings in higher wages and more benefits to stay competitive, as opposed to those who forgo the incentive. This means that it may be in your best interest to self-report if you are comfortable doing so, but keep in mind that you always maintain your right to refuse without penalty. Be sure to consult your HR team if you have any questions or concerns.

Who should I contact in my state?

Although eligibility requirements are set by the Internal Revenue Service (IRS), the WOTC is administered at the state level. As a result, each state may have different application processes or additional reporting requirements. Click here to find your state’s coordinator and start claiming WOTC for eligible new hires today!

About Workmorphis

Workmorphis provides a full suite of services to help organizations across the U.S. revitalize their workforce, including workforce planning strategiesskills transformationdiversified workforce pipeline strategiesemployee support and empowerment, and more.

Connect with us at 877.999.7717 or to offer your insights or learn how we can help you transform your workforce.

Meet the Author

Nicholas Klein focuses on project execution and policy strategy at Workmorphis. He is an expert implementer who specializes in decoding the public workforce system to help employers and employees compete in a fast-changing labor market. Passionate about advancing policies that create economic mobility, Klein believes that great strategies create new opportunities and prosperity potential at all levels throughout our workplaces, from ownership to entry-level. Klein is a two-time graduate of The Ohio State University, recently earning his Master of Public Administration (MPA) from the John Glenn College of Public Affairs and his BA in Political Science. In between, he worked in the entertainment industry. His favorite things include action-adventure video games, history, indie and Americana music, and science fiction movies.

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