Trouble Finding Workers? – Get Help and a Tax Credit

Since COVID-19 entered the picture, the U.S. economy and job market have been in flux. Between increased unemployment benefits and other incentives to stay at home, there are approximately 1 million more job opportunities than people looking for worki. Many employers are offering incentives from cash to benefits to find employees.

Various sources report that in September 2021 there were approximately 8.7 million people seeking work and 9.8 million jobs available. One would think that this would make finding people to hire an easy task. That hasn’t been the case. There is one place to get some help in hiring and reducing the costs of doing so.

What is the WOTC, Work Opportunity Tax Credit?

During National Small Business Week in September 2021, the IRS reminds employers about a tax credit for hiring people on long-term unemployment and others with barriers to employment. The Work Opportunity Tax Creditii has been extended through the end of 2025. The primary target group is made up of those unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all that time.

The other groups include certain veterans and recipients of other kinds of public assistance. These groups include:

  • Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Formerly incarcerated individuals
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients

As usual, the employer has a few hoops to jump through. Filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit with the employer’s SWA, State Workforce Agency, gets the ball started.

From the IRS websiteiii: 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. In general, 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 certified as being a member of a targeted group; and
  • performs at least 400 hours of services for that employer.

There are always other hoops and rules, so consult with a tax advisor. The Form 8850 is normally filed within 28 days of the date of first employment of the eligible worker. There are also rules as to which areas of income and taxes against which the credit can be applied.

Back to the 2021 difficulties of employers in hiring qualified people, it may be time to look at the WOTC after the current extension until the end of 2025.

i There are about 1 million more job openings than people looking for work – CNBC.com

ii Renewed tax credit can help employers hire workers; key certification requirement applies – IRS.gov

iii Work Opportunity Tax Credit – IRS.gov

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