Like many businesses today, manufacturers are in need of skilled workers. The Work Opportunity Tax Credit (WOTC) can provide some tax relief when you hire employees from “targeted” disadvantaged groups.

Calculating the credit

The amount of the credit depends on the relevant targeted group and wages paid to the new hire. For example, hiring qualified summer youth program participants may earn you a credit of up to $1,200 (40% of first-year wages up to $3,000). For most targeted groups, the credit equals up to $2,400 per hire (40% of up to $6,000 in qualified first-year wages). First-year wages are generally wages subject to federal unemployment taxes.

Other target groups for this credit include:

• Qualified ex-felons;
• Qualified long-term unemployment recipients;
• Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits;
• Qualified recipients of Temporary Assistance for Needy Families (TANF);
• Supplemental Security Income recipients;
• Designated community residents (individuals ages 18 to 40 living in an empowerment zone or rural renewal county); and
• Disabled workers referred by a qualified vocational rehabilitation program.

Larger credits are available for certain groups. For example, the credit for hiring long-term family assistance recipients (whose families have received TANF benefits for at least 18 consecutive months) is up to $9,000 (40% of first-year wages up to $10,000 plus 50% of second-year wages up to $10,000), while the credit for hiring veterans with service-connected disabilities who have been unemployed for at least six months in the past year is up to $9,600 (40% of first-year wages up to $24,000). The maximum credits range from $2,400 to $5,600 for other targeted veteran groups.

Related Read: Work Opportunity Tax Credit: Hiring Veterans May Lower Your Payroll Taxes

To qualify for the full credit, an employee must work at least 400 hours during the year (a 25% credit is allowed for employees who work less than 400 hours but at least 120 hours). The WOTC is only available for new hires, not existing employees.

Start now

To take advantage of the credit, complete IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” and have the prospective employee sign the form before you make a job offer. After you hire an eligible employee, additional filings are required to confirm that the employee qualifies for the WOTC.

Related Read: Is Your Business Getting the Credits It Deserves?

For more information, contact Adam Pechin at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.