MAR 6, 2024
WOTC Screening: What to Know About Work Opportunity Tax Credit
Staffing is an important part of any small business. You need to have enough employees to run your business effectively and efficiently, but also keep costs to a minimum to make the most of your revenue. Fortunately, there are various ways employers like you can cut down on your costs, including applying for tax credits. One such program is the work opportunity tax credit (WOTC), which rewards an employer that hires staff from particular demographics. Here, we’ll look at exactly what this WOTC program is, how it can help employers like you, and how to perform a WOTC screening.
Defining WOTC
The best way to understand how you can benefit from WOTC screening first understanding what the WOTC is from the beginning: According to the IRS, the WOTC is a federal tax credit offered to employers who hire employees from certain groups that’ve traditionally faced barriers to employment. These groups include:
- Veterans
- People from families that receive supplemental nutrition assistance program (SNAP) benefits
- Ex-felons
- People with physical or mental disabilities referred by a rehabilitation service
By performing a screening and filing for a WOTC as an employer, you can receive a tax credit equal to 40% of the wages paid, up to $6,000, to qualified new hires. This translates to a potential tax credit of up to $2,400 per qualified employee, according to the IRS.
Additional WOTC Benefits
The WOTC program provides additional benefits to you as an employer beyond the tax credit itself. You’ll be able to broaden your hiring pool by making it financially beneficial to expand your hiring to members of the qualifying groups. The credit is a substantial benefit for a relatively minimal amount of work added to your hiring process (more on that later). The screening process is designed to fit into the hiring process easily. Finally, there’s no limit to how many qualified employees you can hire and for whom you can file for credit.
Of course, there’s no such thing as a perfect system, and the WOTC program does have a couple of challenges. For instance, while there isn’t a limit on how many qualified employees you can hire, there is a time limit for filing. You must submit your pre-screening notice within 28 days of a qualified employee’s first day of work; also, they must begin work on or before Dec. 31, 2025.
The other noteworthy challenge has more to do with the way other businesses treat the WOTC, specifically temp hiring agencies. If you hire temporary employees, it’s very important to vet any temp agencies you use to find staff. Some agencies have violated labor laws to put WOTC-qualified people into positions just so the agency can claim the tax credits. This is neither your fault nor the fault of the employees, but you should be on the lookout for temp agencies who will break labor laws to get a tax break.
The Screening Process
To start earning WOTC credits, you’ll need to add the WOTC screening process to your hiring system. The first step is to obtain certification from your state workforce agency. Once you’re certified, you and each new employee must fill out and submit a pre-screening notice to the IRS on or before the day the job offer is made. This notice includes a set of WOTC screening questions for you and the employee.
Once each new employee starts working, keep careful track of how many hours each one works and how much they’re paid. File for the WOTC with your business taxes, and keep careful records of the tax credits you receive.
Screening for the WOTC can be a very worthwhile benefit to your business, helping reduce costs through lower taxes. Like all financial processes, it can be made easier by using a professional service that knows the ins and outs of tax law and human resources; hiring a third-party payroll and HR solutions service like Payroll Vault can help ensure your business doesn’t miss out on any potential savings and tax credits.
Maximize Your Hiring with Payroll Vault
We’re ready to put our expert staff to work for you, providing you with all the payroll and HR solutions your small business needs. From calculating payroll and filing taxes to providing pre-employment screening services, our boutique-style business will provide you with service customized to your requirements. Find your nearest Payroll Vault location and get a quote today.
