Overview

The Work Opportunity Tax Credit (WOTC) provides businesses with an incentive to hire individuals from groups that have a particularly high unemployment rate or other special employment needs.  The business does not have to be in a federal empowerment zone, state enterprise zone or renewal community to qualify for this credit.  A credit can be claimed if a business pays or incurs “qualified first-year wages” to a “targeted group employee”. 

The Work Opportunity Credit (Form 5884) is used to claim the WOTC for qualified 1st-year wages paid by the business to or incurred for targeted-group employees during the tax year.  The Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits (Form 8850) must be signed by the employer and by the qualified individual and submitted to the State Employment Security Agency (SESA) by the 28th calendar day after the individual begins work. If the SESA denies the request, it will provide a written explanation of the reason for denial.


Targeted Group Employee:

A targeted group employee is any employee who has been certified by SESA as a:

1. Qualified recipient of assistance under Temporary Assistance for Needy Families (TANF)
2. Qualified veteran
3. Qualified ex-felon
4. High-risk youth
5. Vocational rehabilitation referral
6. Qualified summer youth employee
7. Food stamp recipient
8. Supplemental security income
   
   

Qualified first-year wages:

“Qualified first-year wages” are qualified wages you pay or incur for work performed by a targeted group employee during the 1st-year period beginning on the date the individual begins work for the business.  Qualified wages are generally wages subject to the Federal Unemployment Tax Act (FUTA) without regard to the FUTA dollar limit, but not more than $6,000 each tax year for each employee ($3,000 each tax year for a summer youth employee).


Nonqualified Wages:

The amount of qualified wages for any employee is zero if: 

• The employee did not work for the business for at least 120 hours
• The employee worked for the same business previously
• The employee is a dependent or a related party of the business owner
• 50% or less of the wages the employee received from the business were for working for that trade or business
• The business used any of the employee’s wages to figure the welfare-to-work credit for the current year

Nonqualified wages include:

• Wages paid to any employee during any period for which the business received payment for the employee from a federally funded on-the-job training program
• Wages paid or incurred to a high-risk or qualified summer youth employee for services performed while the employee lived outside an empowerment zone, enterprise community or renewal community
• Wages paid or incurred for services performed by a qualified summer youth employee before or after any 90-day period between May 1 and September 15
• Wages for services of replacement workers during a strike or lockout

Amount of the Credit:

Rate and Maximum Credit Each Tax Year for Each Targeted Group Employee
Hours Worked	Rate	Maximum Qualified 1st Year Wages	Maximum Credit
At least 400	40%	$ 6,000	$ 2,400
Fewer than 400 but at least 120	25%	$ 6,000	$ 1,500
*$3,000 for a summer youth employee

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