ABOUT WOTC AND THE TARGETED GROUPS
The Work Opportunity Tax Credit (WOTC) was first enacted as of October 1, 1996 as part of comprehensive welfare reform: as welfare recipients were being pushed into the job market, there was a need to encourage employers to incur the additional costs of hiring and training individuals who may have never been in or succeeded in the workforce.
Because of its core mission, during the first few years of the program, close to 90% of participating individuals were from households receiving TANF (Temporary Assistance to Needy Families- i.e. welfare), Food Stamps, or other Title IV-A services. As welfare reform succeeded and evolved, WOTC was expanded to become a vehicle for encouraging employment for other groups that historically have had difficulty entering and remaining in the workforce. In 2010, about 68 % of WOTC employees were on public assistance programs including welfare, food stamps and SSI, and 32 % came from other target groups.
A Success Story
In 2003, New York State conducted a study which showed that WOTC employees broke the cycle of dependence and were likely to remain in the workforce. By studying welfare rolls and unemployment rolls, the evidence showed that once in the workforce, WOTC employees who left an employer did so for work with another employer.
More recently, a 2011 study by Professor Peter Cappelli of the Wharton School not only reached the same conclusion, but added that WOTC grows the workforce by requiring employers to reach out to applicants outside the current labor market. A high percentage of WOTC hires add a net new person into the market, as opposed to moving a person from one job to another. The study also concluded that the taxpayer savings in the reduced entitlement expenses and greater payroll tax revenue more than offset the net cost of the credit. WOTC saves taxpayers money. Click here for a link to the Cappelli Study.
According to the Department of Labor, more than 13,000,000 persons have been hired under WOTC.
How WOTC Works
Employers may qualify for a federal tax credit for hiring individuals ‘certified’ as a member of a WOTC "targeted group." The credit for most groups is up to $2,400. In addition there is a generous two year credit of up to $9,000 for hiring long-term TANF recipients.
By statute, WOTC requires participating employers to pre-screen job applicants for eligibility by having them complete an IRS Form 8850 on or before the day of a job offer. Many employer elect to supplement this pre-screening process by recruiting through labor sources that provide qualified candidates such as One-Stops and community based organizations. If the employer believes that they have hired a qualified candidate, the 8850 must be received or postmarked to the certifying agency no later the new hire’s 28th day of work along with a Department of Labor form 9061 and documentation on the back of the 9061.
Each state has one ‘certifying agency’ that reviews all 8850s and supplemental information. If the 8850 is received on time, and the documentation verifies eligibility, the Agency issues a ‘certification’, which acts as the Employer’s license to claim a credit, based on target group and qualified wages. Employers should also be aware that there is a minimum work rule of 120 hours before any credits may be claimed and a tiered credit for employees who work more than 120 and less than 400 hours, with the highest tiered group being for employees who work more than 400 hours.
Over the years, there has been some addition of temporary Target groups to address specific challenges, such as ‘Katrina WOTC’ and ‘Disconnected Youths.' NEON is currently working to get WOTC expanded to include the long-term unemployed.
Current Target groups are:
Qualified TANF Recipients
Qualified Long-Term TANF Recipients
Qualified Snap Benefit [Food Stamp] Recipients
Designated Community Residents
Supplemental Security Income [SSI] Recipients
Vocational Rehabilitation Referrals
Summer Youth Employees
The Long-term Unemployed