Work Opportunity Tax Credit
Tax Savings to Employers
The Work Opportunity Tax Credit is a two-tier tax credit. How much credit an employer may actually claim at tax time for a certified new hire depends on the targeted group of the new hire, how many hours the individual works for the employer, and how much in qualified wages the worker earns.
There is no limit to the number of new hires that can qualify an employer for the WOTC in any calendar year and the amount of tax credit an employer can accrue.
For a worker certified in Target Groups 1, 2a, 2d, 3 - 5 and 7 - 8, the tax credit applies to the first year of employment only. The maximum tax credit an employer can claim for the new hire is $2,400. Only the first $6,000 of qualified wages can be considered.
Here is how the credit is calculated:
Full WOTC credit requires 400 hours of work.
- Calculate 40 percent of wages earned up to $6,000 wage cap
Partial WOTC credit requires at least 120 hours but less than 400 hours.
- Calculate 25 percent of wages earned up to $6,000 wage cap ($1500 maximum credit allowed)
For Disabled Veterans - Discharged within a year (Group 2b)
Wage cap is first $12,000 of qualified wages. Maximum tax credit is $4,800 per new hire.
Full WOTC credit requires 400 hours of work.
- Calculate 40 percent of wages earned up to $12,000 wage cap
Partial WOTC credit requires at least 120 hours of work but less than 400 hours.
- Calculate 25 percent of wages earned up to $12,000 wage cap ($3,000 maximum credit allowed)
For Unemployed Disabled Veterans (Group 2c)
Wage cap is first $24,000 of qualified wages. Maximum tax credit is $9,600 per new hire.
Full WOTC credit requires 400 hours of work.
- Calculate 40 percent of wages earned up to $24,000 wage cap
Partial WOTC credit requires at least 120 hours of work but less than 400 hours.
- Calculate 25 percent of wages earned up to $24,000 wage cap ($6,000 maximum credit allowed)
For Unemployed Veterans - Six Months (Group 2e)
Wage cap is first $14,000 of qualified wages. Maximum tax credit is $5,600 per new hire.
Full WOTC credit requires 400 hours of work.
- Calculate 40 percent of wages earned up to $14,000 wage cap
Partial WOTC credit requires at least 120 hours of work but less than 400 hours.
- Calculate 25 percent of wages earned up to $14,000 wage cap ($3,500 maximum credit allowed)
For 501(c) tax-exempt organizations (Veteran target groups only)
Wage cap is based on qualified wages for each individual veteran target group listed above. A refund is issued against the employer's social security tax liability.
Full WOTC credit requires 400 hours of work.
- Calculate 26 percent of wages earned up to specific wage cap
Partial WOTC credit requires at least 120 hours of work but less than 400 hours.
- Calculate 16.25 percent of wages earned up to specific wage cap
For Qualified Summer Youth (Group 6):
Wage cap is first $3,000 of qualified wages. Maximum tax credit is $1,200 per new hire.
Full WOTC credit requires 400 hours of work.
- Calculate 40 percent of wages earned up to $3,000 wage cap
Partial WOTC credit requires at least 120 hours but less than 400 hours.
- Calculate 25 percent of wages earned up to $3,000 wage cap ($750 maximum credit allowed)
For Long-term Family Assistance (LTFA) recipient (Group 9):
The WOTC applies to the first two years of employment. Wage Cap is first $10,000 of qualified wages in each year. Maximum first year tax credit is $4,000 per new hire. Maximum second year tax credit is $5,000 per new hire. Maximum two year combined tax credit is $9,000 per new hire. The credit in second year of employment requires no minimum number of hours worked.
Full WOTC credit in first year of employment requires 400 hours of work.
- Calculate 40 percent of wages earned up to $10,000 wage cap
- Calculate 50 percent of wages earned (second year of employment) up to $5,000 wage cap
Partial WOTC credit in first year requires at least 120 hours of work but less than 400 hours
- Calculate 25 percent of wages earned up to $10,000 wage cap ($2500 maximum credit allowed)
Qualified Wages and Hours
Qualified first-year wages and hours begin the day the employee starts work. The first year of employment is 365 consecutive days. If breaks in employment of a certified worker occur during the first year, the employer should not file another application for the WOTC because of such breaks.
The employer is to count all wages earned and hours worked during the first year of employment. For an individual certified as Group 9 (LTFA), wages are to be counted in the same way for the second year of employment.
For workers certified as Group 4 or 6 (Designated Community Resident and Qualified Summer Youth), qualified wages and hours are only those which are earned while the worker resides in the Minneapolis Empowerment Zone or for Group 4 in a designated Rural Renewal County.