Hiring the right employees is one of the biggest challenges for Texas employers, especially when trying to balance budget constraints and workforce needs. Many business owners may be unaware of available incentives that can offset hiring costs, including the Work Opportunity Tax Credit (WOTC). By understanding who qualifies, employers can not only reduce federal tax liability but also bring talented, motivated individuals into their teams, supporting workforce diversity and community impact.
In this blog, learn the key WOTC target groups, what makes employees eligible, and how understanding these classifications can save money while expanding hiring opportunities for your business.
What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal tax incentive designed to encourage employers to hire individuals from specific target groups who face barriers to employment. Essentially, businesses can claim a tax credit for each eligible employee they hire, lowering their federal tax liability.
The program benefits both employers and employees. For businesses, it’s an opportunity to save money on taxes while building a more inclusive workforce. For employees, WOTC provides access to employment opportunities that might otherwise be limited due to various challenges, such as unemployment, lack of experience, or personal circumstances.
WOTC is available for a variety of industries and is particularly valuable for small and medium-sized businesses looking to offset hiring costs while supporting community workforce initiatives. The key is understanding which employees qualify and ensuring the proper documentation is collected at hiring.
WOTC Target Groups Explained
The WOTC program identifies several target groups of employees who are eligible for the tax credit. Each group has specific criteria that employers must verify before claiming the credit:
- Veterans: Individuals who have recently separated from military service, particularly those unemployed or with service-connected disabilities, are eligible. Hiring veterans not only supports the community but can provide a significant tax credit.
- Ex-Felons: Individuals who have been convicted of a felony and are hired within a year of release qualify. This program encourages reintegration into the workforce.
- Temporary Assistance for Needy Families (TANF) Recipients: Individuals receiving cash assistance are eligible for WOTC when hired, helping employers reduce payroll costs while supporting low-income workers.
- Supplemental Nutrition Assistance Program (SNAP) Recipients: Employees on food assistance programs also qualify. This provides an incentive to hire candidates who might otherwise face employment barriers.
- Long-Term Unemployed Individuals: Job seekers unemployed for 27 weeks or longer may make your business eligible for a tax credit, encouraging employers to consider candidates who are motivated to re-enter the workforce.
- Vocational Rehabilitation Referrals: Individuals referred by state vocational rehabilitation agencies are eligible, making it easier for employers to support people with disabilities while accessing incentives.
Understanding these target groups allows employers to strategically identify candidates who qualify for WOTC, making hiring both financially beneficial and socially impactful.
How Employers Can Claim WOTC
Once you identify employees who qualify for WOTC, the next step is to properly claim the tax credit. Employers must complete certain documentation and submit it to the appropriate state workforce agency.
- Pre-Screening and Forms
The first step in the process is screening candidates to ensure they meet the eligibility requirements. To start, employers need to submit IRS Form 8850, a pre-screening notice, and Department of Labor (DOL) ETA Form 9061 to verify eligibility. These forms must be submitted within 28 days of the employee’s start date. - Certification
After submission, the state workforce agency reviews the forms and certifies whether the employee qualifies for the credit. This certification is necessary for claiming the credit on your federal tax return. - Tracking Credits
Once employees are certified, employers can calculate the value of their tax credits and track them using IRS schedules. Employers can claim credits on their annual tax return, reducing the amount of tax owed for that year.
For Texas businesses, partnering with an expert can streamline this process, ensuring you never miss an opportunity to claim your credit.
Benefits Beyond Tax Savings
While the primary benefit of WOTC is tax relief, there are other advantages to hiring individuals from the targeted groups.
- Cost-Effective Hiring Strategy: Hiring from these qualified groups can help reduce turnover, foster a more diverse workplace, and strengthen your community ties, all while saving on payroll taxes. Additionally, hiring veterans or long-term unemployed individuals brings loyalty and hard work, qualities that can help grow your business.
- Supporting Workforce Diversity
WOTC encourages businesses to hire individuals who may face challenges entering the workforce. Hiring from target groups supports workforce diversity and opens up opportunities for people from all backgrounds. This creates a more inclusive and welcoming environment for employees, boosting morale and engagement. - Positive Community Impact
Offering employment opportunities to ex-felons or those with disabilities gives back to the community by supporting individuals who are working to build a better future. It also reflects positively on your company’s values and enhances your employer brand.
Maximize your WOTC credits, contact The HR Ally for expert support today!
Your Guide to Claiming WOTC and Earning Tax Credits
The Work Opportunity Tax Credit (WOTC) is an excellent opportunity for Texas employers to save money and contribute to a diverse, inclusive workforce. By hiring from eligible target groups, small businesses can not only benefit from tax relief but also make a positive impact on their communities and improve employee retention.
The process of screening, submitting forms, and tracking credits can be time-consuming, but it doesn’t have to be complicated. The HR Ally offers add-on HR tools to simplify the process, including real-time WOTC eligibility screening, filing, and tracking.
Need help claiming your WOTC credits? Contact The HR Ally today. With WOTC services that handle all the paperwork for you, small businesses can earn up to $9,600 per eligible hire without lifting a finger. Simplify your HR processes, save time, and ensure your business reaps the benefits of this tax incentive.