WOTC: What It Is, Why It Works, and How It Can Save You Money

How WOTC Can Save You MoneyWhat if there was a tax credit that could save you $250,000 every year? And what if applying for that tax credit took only a few minutes of your time?

Good news—there is, and it’s called the Work Opportunity Tax Credit (WOTC). Chances are you’re already hiring employees who meet the requirements for the credit. In this post, we’ll talk about what the provisions of the law are, why you should consider applying, and how you can save thousands of dollars every year without a huge time investment.

WOTC: Breaking Down Barriers to Employment

The goal of WOTC according to the Department of Labor is to “incentivize workplace diversity and facilitate access to good jobs for American workers.” The program offers tax credits in an effort to overcome employment barriers faced by targeted groups of workers including:

  • Unemployed veterans
  • Food stamp (SNAP) recipients
  • Residents of Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referred individuals
  • Ex-felons
  • Temporary Assistance for Needy Families (TANF) recipients
  • Supplemental Security Income (SSI) recipients
  • Summer youth employees who live in Empowerment Zones

Depending on the qualifications of the individual, companies may be eligible to receive $1,200 to $9,600 per eligible employee per year upon hiring.

Why Is WOTC A Good Bet for Employers?

Even if you’ve never applied for WOTC before, chances are you have hired or will hire employees who meet the qualifications. According to Eldridge Bravo from Neon Works, about 20% of new hires usually qualify for a credit depending on the industry. Neon Works processes WOTC credits for clients on a contingency basis using a simple qualification process that takes place during onboarding.

“We see the greatest benefits in industries like service, hospitality, quick serve restaurants, and other places where there is typically high turnover,” said Bravo. “Employees are encouraged to answer a few questions during onboarding, and when we see that they are qualified, we begin the application process.”

Employers have 28 days from the date of hire to submit their applications, so it’s important to determine qualification immediately after the new employee joins your team.

What’s the Easiest Way To Save Money With WOTC?

Answer: Delegate it. 

A lot of companies don’t bother with WOTC because of the time it takes to apply. Filling out forms, sending in paperwork, waiting for a response—it all takes resources that many HR departments don’t want to invest. But what if you could get the credit without doing the work? That’s where your PEO comes in.

Some PEOs will process the credits on your behalf for a percentage of the credit. For example, Group Management Services charges 16% of the amount received in credit, with the remaining 84% going to the client. Third party services like the one offered by Neon Works also charge a contingency fee (theirs falls between 15% and 18%) and can easily work with your PEO or payroll system. 

So back to the questions we posed at the beginning of this article:

Can you save $250,000 per year with WOTC? Yes, if you hire enough qualifying employees and retain them over time. Remember, you get the credit every year the employee remains on your payroll, not just the first year. 

Will it take just a few minutes of your time? Yes, if you work with a PEO or third party provider to process the applications for you. All you need to do is include a brief questionnaire in the onboarding process to determine if the employee qualifies. 

It’s that simple.