WOTCs: What They Are and How They Can Help Business Owners

BenefitMall now offers clients the ultimate recruiting and hiring tool, which we called TalentFocus. You can do a lot with TalentFocus, including screening new hires for Work Opportunity Tax Credit (WOTC) status. And if a new hire is eligible, the system will retrieve the paperwork electronically and make sure it is included in the onboarding process. There is no easier way to check WOTC eligibility.


An Explanation of WOTC

The WOTC is a federal tax credit eligible to qualifying employers who hire workers belonging to one of 10 targeted groups. These groups are all comprised of people who consistently face barriers to employment. The credit is designed to benefit them by incentivizing employers to more aggressively pursue hiring from the targeted groups.


The 10 targeted groups are as follows:

  1. Qualified IV-A Recipients
  2. Qualified Veterans
  3. Ex-Felons
  4. Designated Community Residents
  5. Vocational Rehabilitation Referrals
  6. Summer Youth Employees
  7. Supplemental Nutrition Assistance Program (SNAP) Recipients
  8. Supplemental Security Income (SSI) Recipients
  9. Long-Term Family Assistance Recipients
  10. Qualified Long-Term Unemployment Recipients.

In order to claim the tax credit, new hires must first be screened and certified for eligibility. Once eligibility is confirmed, the employer completes and submits Form 8850 Pre-Screening Notice and Certification Request for the Work Opportunity Credit with the appropriate state agency. The subsequent tax credit can then be claimed on the employer's next return.


How WOTC Benefits Employers

Employers benefit from the WOTC program in a couple of ways. The first benefit is monetary. It is derived from a tax credit for each eligible employee on the payroll. Again, this is a tax credit rather than a write-off. Credits and write-offs are two separate things.

A tax write-off is something that reduces a company's total taxable income. Let's say your company is writing off new office equipment purchased at the start of the year. That write-off reduces your total taxable income by the amount of the purchase. If you spent $10,000 on new office equipment, you reduce your taxable income by $10,000.

A tax credit does something completely different. Rather than reducing taxable income, it reduces your actual tax liability. A $1,000 tax credit would reduce a $10,000 tax bill to $9,000. That's what makes the WOTC so attractive. For every WOTC eligible employee you have on the payroll, your actual tax bill is reduced.


A Larger Employee Pool

The second benefit of the WOTC is a larger pool of potential hires. Many of the people in the 10 targeted groups never make it past the initial recruiting stage because of the barriers they face. But the WOTC gives disaffected job seekers greater access by encouraging employers to work harder to find them.

WOTC essentially increases the employee pool by giving your company a reason to dig as deeply as possible to find the best talent. That is good in that you may discover new hires that could go on to do great things for your company, new hires you never would have found had the WOTC not given you reason to go looking.

Hiring from the 10 targeted groups is good for everyone involved. It benefits workers who finally have access to good paying jobs. It benefits companies by giving them access to a larger employee pool. It benefits the entire country by getting people back to work rather than relying on public benefits.

Remember that TalentFocus has a built-in WOTC tool for screening new hires and obtaining the necessary paperwork. It is just one more reason to consider TalentFocus as part of your overall payroll and HR solution from BenefitMall.