Staffing Strains and the Work Opportunity Tax Credit

While the employee retention credit (ERC) is no more, there’s still a significant tax credit on your side when hiring great workers from demographics that have historically faced significant barriers to employment: the federal Work Opportunity Tax Credit (WOTC).

Staffing shortages over the past few years may have you thinking outside the box. In today’s tight labor market, WOTC can be a valuable tool in your financial toolbox. The program incentivizes hiring individuals from targeted groups who face employment barriers. These groups include veterans, long-term unemployed individuals, recipients of government assistance, ex-felons, and individuals residing in empowerment zones (you can access the complete list of targeted groups here). WOTCs for new hires peaked in 2022 with more than 2.5 million certificates issued by state workforce agencies.

By hiring qualified individuals from WOTC targeted groups, your business may be able to claim tax credits that can significantly reduce your federal tax liability. The credit amount varies based on the particular group and earned wages, ranging from 25% to 40% of the first $6,000 for each qualified employee. These individuals must:

  • Be in their first year of employment.
  • Be certified as being a member of a targeted group.
  • Perform at least 400 hours of services for that employer.

Given those parameters, as the IRS explains here, the maximum tax credit is generally $2,400. The 25% rate applies to wages for individuals who work fewer than 400 but at least 120 hours for the employer. Up to $24,000 in wages may be used to determine the WOTC for certain qualified veterans.

While the tax credit is certainly noteworthy, the WOTC offers additional benefits for employers. Research from Equifax Workforce Solutions shows WOTC-eligible employees:

  • Stay in their jobs for the same length of time or longer as non-WOTC hires.
  • Are less likely to leave their job in the first year than their cohorts.
  • Progress through the ranks at the same pace and earn as much during that time as traditionally hired co-workers.

By employing individuals facing employment hurdles, you also contribute to your community’s economic and social well-being, enhancing your company’s reputation and fostering goodwill.

The WOTC application process may appear complex, but numerous resources are available to assist you, including from the Department of Labor and the IRS. Additionally, many state and local workforce development organizations (including the Texas Workforce Commission) can assist with the WOTC application process. These organizations can help determine your business eligibility, identify qualified candidates, and even assist with completing the necessary paperwork.

One recent change for Texas employers to note: Effective February 20, 2024, the IRS 8850 and ETA 9061/9062 must be submitted within 28 days of the start date for WOTC-eligible employees. It’s vital to consult with a qualified tax professional to discuss your specific circumstances and any law changes you may have missed and to determine if the WOTC program is right for your business. Feel free to contact us with questions.

Photo from 123rf.com

March 12, 2024

Client Spotlight

Nobody else wanted the difficult cases. Jason DeSouza took them anyway, and that experience shaped everything that followed….
Family business succession is one of those conversations many owners know they need to have but keep postponing….
Thinking about buying equipment or a vehicle before year-end for the tax write-off? Before you sign, here are 3 important questions you should ask….
Want to help your grandkids pay for college? Here’s what to know before you give….
If your business generates $1.5 million or more in revenue, how do you capture the tax benefits of family payroll while keeping your business fully…
If you’re setting aside money for your kids or grandkids, the new IRC Section 530A may be a tax-smart way to do it….
When two high earners say “I do,” protecting pre-marital wealth isn’t unromantic—it’s essential strategic planning….
Cryptocurrency may have gone mainstream, but tax compliance is rapidly catching up with updated IRS property classifications and Form 1099-DA broker reporting to evolving regulations….
You might be sitting on a valuable tax strategy without realizing it. Before you make any moves, keep these critical rules in mind….
Under certain circumstances, an S corp election can be great for tax savings, but it’s not always great for growth. Here’s what you should know…
As a business owner, what can you do to eliminate tax surprises? Before jumping on tax liability insurance to insure your tax bill, consider what…

Blogs and Articles

Client Spotlight: DeSouza Injury Lawyers

Nobody else wanted the difficult cases. Jason DeSouza took them anyway, and that experience shaped everything that followed....

Client Spotlight: DeSouza Injury Lawyers

Read More

Unsticking Your Family Business Succession Plan

Family business succession is one of those conversations many owners know they need to have but keep postponing....

Unsticking Your Family Business Succession Plan

Read More

A Caution About Year-End Tax Write-Off Purchases

Thinking about buying equipment or a vehicle before year-end for the tax write-off? Before you sign, here are 3 important questions you should ask....

A Caution About Year-End Tax Write-Off Purchases

Read More

Help Grandchildren with College the Tax-Savvy Way

Want to help your grandkids pay for college? Here's what to know before you give....

Help Grandchildren with College the Tax-Savvy Way

Read More

Spotting Illegal Trusts and Private Family Foundation Arrangements

Spotting Illegal Trusts and Private Family Foundation Arrangements

Read More

Family Business Payroll Tips and Traps

If your business generates $1.5 million or more in revenue, how do you capture the tax benefits of family payroll while keeping your business fully...

Family Business Payroll Tips and Traps

Read More

Is the Trump Account a Safe Bet for Gift Tax Savings?

If you're setting aside money for your kids or grandkids, the new IRC Section 530A may be a tax-smart way to do it....

Is the Trump Account a Safe Bet for Gift Tax Savings?

Read More

Protecting Dual-Income Pre-Marital Wealth

When two high earners say "I do," protecting pre-marital wealth isn't unromantic—it's essential strategic planning....

Protecting Dual-Income Pre-Marital Wealth

Read More

Crypto Tax Changes Are Coming, But What Does That Mean?

Cryptocurrency may have gone mainstream, but tax compliance is rapidly catching up with updated IRS property classifications and Form 1099-DA broker reporting to evolving regulations....

Crypto Tax Changes Are Coming, But What Does That Mean?

Read More

What Is Tax Loss Harvesting?

You might be sitting on a valuable tax strategy without realizing it. Before you make any moves, keep these critical rules in mind....

What Is Tax Loss Harvesting?

Read More

Is an S-Corp Election Still Right for Small Business Owners?

Under certain circumstances, an S corp election can be great for tax savings, but it’s not always great for growth. Here’s what you should know...

Is an S-Corp Election Still Right for Small Business Owners?

Read More

Do Businesses Need Tax Liability Insurance?

As a business owner, what can you do to eliminate tax surprises? Before jumping on tax liability insurance to insure your tax bill, consider what...

Do Businesses Need Tax Liability Insurance?

Read More

Princess Professional

From accountant to owner, and now to a successful exit! Amir Kamel proved that "everything good takes time"—including walking away on your own terms. Read...

Princess Professional

Read More

Princess Beauty Supply

After waiting 11 years for his visa, Amir Kamel's journey from Cairo to building a multi-million dollar Texas business is a true masterclass in grit,...

Princess Beauty Supply

Read More

100% Bonus Depreciation: Hits and Misses

Used wisely, 100% bonus depreciation can fuel growth and protect cash flow; used poorly, it can create unnecessary debt and future tax friction....

100% Bonus Depreciation: Hits and Misses

Read More

Now Accepting New Clients

Let’s Start the Conversation

Let’s take a look at your finances together. We offer a complimentary 1-hour call to review your past tax returns. If we see a way to help you, we will.

Want to receive tax strategies and tips direct to your inbox?

Name(Required)