Work Opportunity Tax Credit (WOTC)

 

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that incentivizes employers to hire individuals from certain targeted groups who have consistently faced significant barriers to employment. The WOTC encourages employers to hire workers from groups that often experience higher unemployment rates or difficulty finding work, such as veterans, ex-felons, individuals receiving government assistance, and individuals with disabilities.

The WOTC provides employers with a tax credit of up to $9,600 per eligible employee, which can be applied against the employer's federal income tax liability. The amount of the credit is based on a percentage of the eligible employee's first-year wages, with higher credit amounts for employees who have been unemployed for a more extended period.

To qualify for the WOTC, the employer and the employee must meet specific eligibility requirements. The employer must have hired the employee from one of the targeted groups and obtained certification from the appropriate state agency before claiming the credit. The employee must also meet specific eligibility criteria, such as being a targeted group member and having worked a certain number of hours during the first year of employment.

The Work Opportunity Tax Credit (WOTC) program was created as part of the Small Business Job Protection Act of 1996. The program was designed to encourage employers to hire workers from certain targeted groups who had historically faced significant barriers to employment.

The original WOTC program was set to expire at the end of 1999 but was extended several times. In 2002, the program was expanded to include a new targeted group: long-term family assistance recipients. In 2007, the program was developed for a new targeted group: unemployed veterans with a service-connected disability.

In 2009, as part of the American Recovery and Reinvestment Act (ARRA), the WOTC program was extended through December 31, 2010. The ARRA also expanded the program to include a new targeted group: unemployed veterans.

In subsequent years, the WOTC program has been extended multiple times, with modifications to the targeted groups' eligibility requirements. In 2015, the program was extended through December 31, 2019, and in 2019, it was extended through December 31, 2020.

Most recently, the Consolidated Appropriations Act 2021 extended the WOTC program through December 31, 2025, and made several modifications to the program, including increasing the credit amount for hiring certain groups of veterans and allowing employers to claim the credit for employees who begin work before January 1, 2026, but only if the certification request is submitted within 28 days after the employee's start date.

Several studies have examined the impact of the Work Opportunity Tax Credit (WOTC) program on employers and employees. Here are some key findings:

1. Increased Employment of Targeted Groups: According to a study by the Urban Institute, the WOTC program has successfully increased employment opportunities for targeted groups. The study found that employers participating in the program are more likely to hire workers from targeted groups, particularly individuals with disabilities and those receiving government assistance.
2. Reduction in Government Spending: The WOTC program has been shown to reduce government spending on public assistance programs, as more individuals can secure employment and become self-sufficient. A study by the Government Accountability Office found that the WOTC program reduced government spending on public assistance programs by an estimated $1 billion between 2012 and 2016.
3. Positive Impact on Employee Retention: The WOTC program has also been shown to impact employee retention positively. A study by the National Bureau of Economic Research found that employees hired through the WOTC program were likelier to remain employed with the same employer for at least one year than employees who were not eligible for the program.
4. Cost-Effective for Employers: The WOTC program is cost-effective for employers, particularly those in industries with high turnover rates. According to a study by the Institute on Taxation and Economic Policy, the average cost per new hire for employers participating in the WOTC program was $522, compared to $3,400 for those not participating.

The WOTC is a valuable tool for employers looking to hire workers from underrepresented or disadvantaged groups while also providing a financial benefit for those employers. The WOTC program has positively impacted employers and employees, increasing employment opportunities for targeted groups, reducing government spending on public assistance programs, improving employee retention rates, and providing employer cost savings.