McGrant Tax And Bookkeeping

Est. 1997

Work Opportunity Tax Credit (WOTC) and Employee Retention: A Strategic Approach to Talent Acquisition

If you were to observe and analyze a handful of successful businesses, you would likely begin to notice they all share common traits and characteristics. While there are certainly exceptions to every rule, in most circumstances, a successful business is going to employ hardworking and reliable staff members. 

Sounds simple enough, right? If you can manage to hire quality employees, everything else will inevitably fall into place. In reality, things are a bit more complicated. Not only do you have to make your company culture appealing to interviewees, but you also have to establish a work environment that encourages loyalty and commitment. In essence, landing a quality employee is one task. Getting that employee to plant roots in your company is another challenge entirely. 

The term ‘talent acquisition’ often refers to the aforementioned process, and many businesses have a member on their staff whose sole role is to find, recruit, and interview potential employees. As a result, many people who work in talent acquisition regularly find themselves tasked with the following: finding the right candidates and selling them on the business. In many ways, when you interview a client, that client is also interviewing you. Why should they work at your business? What incentives and benefits are they promised? 

How the Work Opportunity Tax Credit Incentivizes Owners and Employees

Creating your business’s identity and establishing a strong company culture can take years of work. Especially when it comes to deciding how you’re going to structure benefits, payroll, and taxes. Oftentimes you may be unaware of certain incentives, like for instance, the Work Opportunity Tax Credit.

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers who hire and employ individuals who belong to targeted groups. These individuals have had historical difficulty achieving gainful employment, due to significant barriers. Here are some examples of targeted groups:

  • Qualified IV-A Recipient 
  • Qualified Veterans
  • Qualified Ex-Felons
  • Designated Community Resident (DCR)
  • Vocational Rehab Referral 
  • Qualified Summer Youth Employee
  • Qualified SNAP (Supplemental Nutrition Assistance Program) Benefits Recipients.
  • Qualified Supplemental Security Income Recipient 
  • Long-Term Family Assistance Recipient.
  • Qualified Long Term Unemployment Recipient 

Although you may have a potential hire who fits into one of these categories, it doesn’t by default ensure you’ll receive the WOTC tax credit. On their webpage, the IRS has further specified who qualifies given their criteria. 

Defining the Work Opportunity Tax Credit

Per the IRS’ official website, the WOTC is: 

“A general business credit provided under section 51 of the Internal Revenue Code (Code) that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups.”

As a rule of thumb, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:

  • Is in their first year of employment.
  • Is a certified member of a targeted group and
  • Performs at least 400 hours of services for that employer.

As a result, the maximum tax credit is typically $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at a minimum of 120 hours of service for the employer. 

There are, of course, other criteria that must be met to claim the credit. As an employer, it’s worth learning more about WOTC, as there might be people on your staff who qualify or would have previously qualified, without you even knowing. 

Other Criteria to Consider Regarding the WOTC 

To be granted the WOTC, the employee(s) in question must meet all of the necessary criteria. As a business owner, you will also have to meet certain eligibility standards. Because the WOTC is a joint effort initiative, employers must be screened and cleared by both the IRS and whatever Designated State Agency (referred to as a State Workforce Agency or SWA) is applicable.

Undoubtedly, there is a lot of legwork involved. Nevertheless, the benefits can be extremely lucrative especially if you have multiple employees who are eligible. As is the case with most credits and tax breaks, there’s a lot of time and paperwork that goes into the WOTC application process.

Moreover, it’s paramount that all of the information provided is documented and recorded with complete accuracy. Fortunately, many reputable firms and accountants can help you navigate the process. In the end, if you are unsure of your ability to transcribe and keep track of all important documents, it might be worthwhile to consult a professional who has a history of working with tax credits.

Does the WOTC Benefit the Employee? 

We know for certain that the WOTC benefits businesses and employers, but what about employees? After all, in the world of talent acquisition, it is commonplace to consider how your business appears to potential employees. What incentives and benefits can you provide? Why should they choose your company over another?

While the tax credit itself is only granted to employers, it still benefits employees in different ways. For starters, you are hiring applicants who belong to targeted groups. By nature, these individuals have personal circumstances that block them from employment. Oftentimes, relegating them to a very small selection of jobs. However, just because a person belongs to a targeted group does not mean they won’t deliver as an employee. The WOTC simply helps push employers to consider a selection of candidates who may have very impressive resumes and skills but are often blackballed before they can be given any real chance or consideration.

In summation, a lot goes into the process of acquiring the WOTC credit. Nevertheless, it is still a credit worth considering, especially if you have a business that already often hires people from these targeted groups. From a talent acquisition standpoint, you’ll likely find a lot of qualified employees, who you may have rejected otherwise, simply because they fall into a specific category. Ultimately, the WOTC can significantly benefit a business if that business is willing to uphold its end of the requirements. 

At McGrant Tax And Bookkeeping, we are here to help answer all your questions regarding your tax credits as your primary bookkeeper in Charlotte NC  Please feel free to contact us today at any of our two locations or visit our website and book an online or physical appointment.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her attorney, business advisor, or tax advisor concerning matters referenced in this post. McGrant Tax and Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.

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