The Federal Work Opportunity Tax Credit (“WOTC”) provides tax incentives for hiring individuals who traditionally face barriers to employment. Unlike many state incentives, WOTC is available to restaurant and hospitality businesses. Furthermore, WOTC does not require employers to increase their overall headcount – merely replacing a departing employee with a WOTC-eligible employee is eligible – so the “churn” counts for generating tax credits.
Due to COVID, the number of Americans who are WOTC-eligible has increased substantially. While WOTC is a federal tax credit, the employee certification process is managed by state labor departments. New hires must be certified as WOTC eligible by state labor departments within twenty-eight days of the employee’s start date.
WOTC eligible employees include:
- Qualified TANF recipients.
- Qualified veterans.
- Supplemental Nutrition Assistance Program (“SNAP”) recipients.
- Designated community residents.
- Vocational rehabilitation referrals.
- Summer youth employees.
- Ex-felons.
- Supplemental Security Income (“SSI”) recipients.
- Long-term Family Assistance recipients.
- Qualified Long-term Unemployment recipients.
Due to mandated COVID-19 lockdowns, hospitality-related businesses were forced to shut down resulting in employee layoffs throughout the industry.Now that these individuals are returning to the workforce, many more will be WOTC-eligible as they were forced to take various assistance programs to see them through the emergency.
Understanding the Federal Work Opportunity Tax Credit
Lena Combs and Withum’s Stuart McCallum, Partner and Consumer Products Practice Leader review WOTC and discuss the benefits and impacts of this tax credit on lodging businesses in our latest episode of Lodging Insights & Innovations.
The maximum credit ranges from $2,400 to $9,600 per eligible employee.The amount of credit an employer receives is based on the eligible employee’s hours worked and payroll. The credit for eligible employees working more than 120 hours and less than 400 hours is generally 25% of qualified wages.The credit increases to 40% of qualified wages for eligible employees working more than 400 hours.The maximum credit for each new hire depends on the new hire’s WOTC qualification (e.g., the maximum benefit for a qualified veteran is higher than the maximum credit for an ex-felon).While the credit is capped per capita, the total credit available to an employer is unlimited.
New hires are required to fill out a WOTC questionnaire and provide documentation substantiating their eligibility to generate WOTC benefits. The questionnaire and supporting documents form the basis of the application for certification filed with the respective state labor department. Employers are hiring WOTC-eligible employees every day. Employers who fail to take advantage of the incentive are quite simply leaving money on the table. Furthermore, by claiming WOTC benefits, employers can monetize their HR/onboarding functions.
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For more information on this topic, please contact a member of Withum’s Hospitality Services Team.
