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The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to all private sector businesses. It was designed as an incentive to employers to hire individuals in certain targeted groups who consistently experience high rates of unemployment due to a variety of employment barriers.

Targeted Groups:

(Group 1) Short-term Temporary Assistance for Needy Families Recipient (TANF)*
(Group 2) Qualified Veteran
(Group 3) Qualified Ex-felon
(Group 4) Designated Community Resident (DCR)
(Group 5) Vocational Rehabilitation Referral
(Group 6) Summer Youth Employee
(Group 7) Food Stamp Recipient
(Group 8) Supplemental Security Income (SSI) Recipient
(Group 9) Long-term Family Assistance Recipient (TANF)
(Group 10) Hurricane Katrina employee
(Group 11) Unemployed Veteran*
(Group 12) Disconnected Youth*

*New target groups added by American Recovery and Reinvestment Act of 2009

Click here for more details on each group

Benefits from the WOTC:

For most groups above, the credit is calculated as follows:

Full WOTC credit is for an employee who works 400 hours or more:

  • Calculate 40 percent of wages earned up to $6,000 wage cap ($2400 maximum credit allowed)

 

Partial WOTC credit is for an employee who works 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)

 

Special rules applicable to certain Groups vary the maximum amount of credit and are as follows:

  • $4,800 for a Disabled Veteran (Group 2)
  • $1,200 for a Summer Youth (Group 6)
  • $9,000 Long-term Family Assistance (LTFA) recipient (Group 9) hired over a two-year period

 

The WOTC applies only to new employees and only first-year wages generate the WOTC credit. The new employee may not have worked for the hiring employer anytime in the past and may not be a relative, dependent or a majority owner of the business. The tax credit is available for new hires with job start dates through August 31, 2011.

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