SMALL BUSINESS OWNERS AND HIRING MANAGERS
Tax Relief to Attract & Retain Qualified Workers
Attracting and retaining quality workers has never been more challenging. You may identify with the most recent statistics of the labor struggle faced by “Main Street” employers:
- Fifty-two percent of small business owners who responded to a survey, report that it was harder to find qualified people to hire in Q1 2022 … a 50% jump from Q4 2021
- Twenty-nine percent of small business owners said they have open positions vacant for at least three months, with no success in attracting workers.
- Likewise 77% of small businesses with more than 50 employees anticipate turnover to likely be a significant problem by year-end.
OK. Enough of the recruiting and retention crisis facts. This article is not to rehash the obvious. Our intent is to offer a potential solution to attract and retain qualified workers … many of whom are demanding increases in compensation to consider accepting a position or remaining employed.
The Work Opportunity Tax Credit (WOTC)
WOTC Defined: The work opportunity tax credit (WOTC) is a federal business tax credit designed to increase employment opportunities for American job seekers who consistently experience barriers to employment. Said workers are deemed “targeted groups” such as veterans, public assistance recipients, or ex-felons.
(More detail in a bit.)
The Consolidated Appropriation Act, 2021 authorized the extension of the Work Opportunity Tax Credit (WOTC) until December 31, 2025.
Eligible Businesses: Any business, regardless of size or industry, may be eligible to claim tax credits under the WOTC program. Notably, there’s no limit to the number of individuals employers can hire as part of the program. That means there’s no cap on the amount of credits that they can claim.
The WOTC credit amount can be as much as $9,600 for each qualified new hire. The maximum credit is determined by the employee’s target group equal to a percentage of the eligible employee’s wages. Additionally, the employee must work at least 120 hours for the employer to receive the credit.
WOTC Target Groups: The new employee must belong to one of the following WOTC target groups:
Take These 3 Steps to Take Advantage of the WOTC
Click here for more details at the Department of Labor website.
- Connect with a qualified job candidate. American Job Centers can help!
State Workforce Agencies (SWAs) are authorized to administer the WOTC certification process. SWAs coordinate with American Job Centers and partnering agencies – such as vocational rehabilitation agencies, city and county social service offices, the Veterans Administration and others – to help employers connect with skilled job seekers who may be members of WOTC targeted groups. - File a WOTC certification request with your state workforce agency.
Employers must apply for and receive a certification verifying that the new hire is a member of a targeted group before they can claim the tax credit. To verify whether a job applicant is a first-time, qualifying member of a targeted group, employers must submit IRS Form 8850, together with ETA Form 9061 or ETA Form 9062, to the state workforce agency in which your business is located within 28 calendar days after the new hire’s start date. - Receive a WOTC certification for eligible new hires and claim the credit after their first year of employment.
If the new hire meets the eligibility requirements for a WOTC targeted group, you will receive a certification (ETA Form 9063) from your state workforce agency. Taxable employers can claim the WOTC as a general business credit against their income taxes. Tax-exempt employers who hire qualified veterans can claim the WOTC against their payroll taxes. Generally, the credit is 40% of qualified wages for individuals who work 400+ hours in their first year of employment. For more information about claiming the credit, see the instructions on the IRS.gov website.
Claiming the Credit & Limitations
- Employers claim the tax credit for the year that that the credit was awarded … not the year the employee was hired.
- The business must have a tax liability against which to use the credit.
- A taxable business may apply the credit against its business income tax liability.
- For qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to all employees for the period the credit is claimed.
- Unused credit can be carried back one year and carried forward for 20 years.
If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email. We’ll respond immediately!
