The Work Opportunity Tax Credit (WOTC) was first enacted as part of comprehensive welfare reform in 1996: 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 face significant barriers to enter the workforce because they have never been employed 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 Temporary Assistance to Needy Families (TANF) 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. Â 32% came from other target groups.
- Qualified TANF Recipients
- Qualified Long-Term TANF Recipients
- Qualified SNAP Benefit Recipients (Food Stamp)
- Designated Community Residents
- Supplemental Security Income (SSI)
- Vocational Rehabilitation Referrals
- Qualified Ex-Offenders
- Qualified Veterans
- Summer Youth Employees
- The Long-Term Unemployed
Over the years, there has been some addition of temporary target groups to address specific challenges, such as ‘Disconnected Youths’ and those impacted by natural disasters such as Hurricanes Katrina and Sandy, as well floods in the Midwest. NEON is currently working to get WOTC expanded to include the Supplemental Security Disability Insurance recipients, residents of Opportunity Zones, foster youth, and lifting the current age ceiling on recipients of Food Stamps.
How WOTC Works
Step 1
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 $2400, and there is a generous two-year credit of up to $9,600 for hiring long-term TANF recipients
Step 2
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 employers elect to supplement this pre-screening process by recruiting through labor sources that provide qualified candidates. The 8850 must be received of postmarked to the certifying agency no later than 28 days after the new hire along with a Department of Labor form 9061 and documentation on the back of the 9061.
Step 3
Each state has one “certifying agency” that reviews all 8850s and supplemental information.  If the 8850 is received on time, and the documentation verified eligibility, the Agency issues a “certification”, which allows an employer to claim  WOTC tax credits based on the employee qualification in a targeted group and the wage is paid.  For those who work 120 hours to 399 hours, the credit is 25 percent. Once employees reach 400 hours, the credit is 40 percent of all qualifying wages starting when the employee began working for the employer.
Six Facts About WOTC
FACT #1Over 30 Million Served
28.2 Million individuals have moved from public assistance into the workforce since the program started in 1994
FACT #2$167B Saved
A Net savings of $17,700 in Welfare spending per individual hired. Federal 10-year savings of $167 Billion .
FACT #3Breaking Barriers
Helps individuals with barriers to employment: veterans, the disabled, TANF recipients, ex-offenders, etc.
FACT #6$3.5B/year/state savings
Saves $3.5 billion per year in state TANF, SNAP, and Medicaid expenditures. $36 billion savings for 10 years.
