What is the WOTC?
How much is the WOTC worth?
How do I claim the WOTC?
Resources

Legal Disclaimer
The information below is intended only to inform and not to be a substitute for the reader's seeking legal counsel. Any information given here should be examined by the reader's attorneys as to such information's applicability.

What is the WOTC?

The Work Opportunity Tax Credit (WOTC) is a federal income tax credit designed to help people move into the job market.

The WOTC enables employers to reduce their federal income taxes by as much as $2,400 per qualified employee.

Employers may claim the WOTC for eligible employees hired between Oct. 1, 1996, and Dec. 31, 2001, who fit into one of the following eight categories.

• Families who receive or recently received certain welfare payments
• 18-to-24-year-olds in families that receive or recently received food stamps
• 18-to-24-year-old residents of federally-designated empowerment zones or enterprise communities (EZ/EC)
• 16-to-17-year-old EZ/EC resident hired during the summer months
• Qualified veterans
• Certain disabled persons in rehab
• SSI beneficiaries
• Qualified ex-felons

Check the U.S. Department of Labor's Web site for more detail. The DOL's site also offers information on the special Welfare-to-Work tax credit for longer-term welfare recipients.

How much is the WOTC worth?

The amount of the tax credit you can claim depends on the number of hours a qualified employee works for you during a year. An employee must work for at least 120 hours.

• If they work 400 or more hours. Employers are eligible for a 40% tax credit on the first $6,000 that employee earns while working for you. (In the case of an employee considered a "Summer Youth Employee," qualified wages are capped at $3,000 rather than $6,000, and the employee must work for 90 days between May 1 and Sept. 15.)
  Your potential tax savings: 40% of $6,000 = $2,400
  Your potential tax savings for a summer youth employee: 40% of $6,000 = $2,400
  
  
• If they work 120-400 hours. Employers qualify for a 25% tax credit against the first $6,000 that employee earns while working for you.

How do I claim the WOTC?

Employers need to follow these steps.

1. Fill out an IRS pre-screening form by the day you make the job offer. IRS Form 8850 helps employers pre-screen applicants to see whether they meet the WOTC eligibility requirements.
   Get Form 8850 copies: IRS or (800) 829-3676 (TAX-FORM).
   
   
2. Complete DOL's ETA Form 9061 or 9062. These forms help the DOL determine whether an employee is eligible for the WOTC. Some job applicants — Job Corps referrals, for example — may come to you with a form already filled out (ETA Form 9062, "Conditional Certification"). If they don't, you need to work with the employee to complete ETA Form 9061.
   Get Form 9061/9062 copies: DOL.
   
   
3. Within 21 days of the employee's start date, mail both forms to your state employment agency's WOTC coordinator.
   Find your local contact: DOL.
   
   
4. Wait to hear from your state. Once your state employment agency's WOTC coordinator has determined that the employee is in one of the target groups, you will receive a "certification" in the mail.
   
   
5. File for your tax credit at tax time. You'll need the state-issued certification to claim the WOTC when you fill out your federal income tax form. Use IRS Form 5884 for the Work Opportunity Tax Credit and IRS Form 8861 for the Welfare-to-Work Tax Credit.
   Get Form 5884/8861 copies: IRS or (800) TAX-FORM.

Resources

U.S. Department of Labor. Lots of detail on the WOTC: downloadable forms, local contacts, more.

IRS. WOTC tax forms.

Welfare-to-Work Partnership. How employers can help welfare recipients make the transition to work.

Work with the National Restaurant Association to ask the U.S. Congress to make the WOTC permanent. Call (800) 424-5156.

June 3, 2001