At a time when many manufacturers across the country are challenged by the skilled worker shortage, it’s good to be reminded of an incentive for hiring individuals available from certain target groups. The Work Opportunity Tax Credit (WOTC) offers a tax break that can benefit both your company and the employees you hire.
Introduced more than 40 years ago as a federal incentive, the WOTC is available to employers who meet certain requirements. Congress extended the credit through 2019 as part of the Protecting American from Tax Hikes (PATH) Act of 2015. The PATH Act made the following changes to WOTC:
- WOTC was renewed retroactive to January 1, 2015
- WOTC was extended for five years through December 31, 2019
- The long-term unemployed was added as a target group. (This was a more significant issue in 2015 when the economy was still rebounding from the recession.)
How the WOTC Works
The WOTC applies to private sector wages paid to new hires from certain groups who have consistently faced significant barriers to employment, including veterans and the disadvantaged. The employee must work for your business at least 120 hours during the first year. If a new employee works at least 400 hours during the first year, the credit equals 25 percent of qualified wages, up to the applicable limit. The credit increases to 40 percent if the new employee works more than 400 hours.
The WOTC tax credit is a one-time tax credit for each new hire—and there is no limit to the number of new hires who can qualify an employer for a tax credit. Businesses can claim tax credits, up to a maximum of $9,600 per eligible employee, depending on the target group eligibility of the person hired and the number of hours worked at the new employer.
The total amount of tax credits available to manufacturers depends on the wages you pay, the specific target group and, as we addressed, the number of hours worked the first year of employment.
To claim the tax credit, employers should:
- Identify workers from credit-eligible groups such as:
- Summer youth employees who live in specified communities
- Vocational rehabilitation referral individuals
- Complete the required Forms 8850 and submit them to the Texas Workforce Commission.
- Claim the credit: Once the employee is deemed WOTC-eligible, you claim the tax credit by filing IRS Form 5884.
The Win-Win for Manufacturers
In addition to saving money to your bottom line, the WOTC saves state and federal government tax dollars by helping the historically underemployed and unemployed find productive private sector jobs. If you have encountered difficulty finding qualified workers, and you are willing to invest training hours in bringing your production levels up to speed, the WOTC might be worth your while. You’ll make a difference in the lives of others while finding needed workers to meet your manufacturing needs.
One last word: the WOTC is temporary. It needs congressional renewal to remain in place, so you may want to take advantage of the program in 2019.
Goldin Peiser & Peiser works with manufacturers on tax strategies that will help them meet their financial goals and objectives. Learn more about the Manufacturing and Distribution Services Group at Goldin Peiser & Peiser. For more information, please contact Kevin Harris, CPA, at 214-365-2473.