The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to encourage businesses to hire individuals from specific target groups who face significant barriers to employment. Established in 1996 under the Small Business Job Protection Act, WOTC provides a financial incentive to businesses that hire disadvantaged individuals, such as veterans, long-term unemployed workers, and those receiving public assistance. By reducing the financial risk associated with hiring, WOTC has become a valuable tool for employers looking to diversify their workforce while also earning federal tax credits.
Businesses can claim WOTC credits for each eligible employee hired, with potential tax savings ranging from $2,400 to $9,600 per employee, depending on the target group they belong to. However, many employers miss out on these valuable credits due to common mistakes made during the screening and application process. Below, we’ll outline these mistakes and explain how automating the WOTC screening process can help.
Which Employees Are Eligible for the Work Opportunity Tax Credit?
The WOTC program includes several target groups of individuals who face barriers to employment. Employers can qualify for tax credits by hiring individuals from the following groups:
- Recipients of Temporary Assistance for Needy Families (TANF), including both short-term and long-term recipients
- Veterans, particularly those who are unemployed or receiving public assistance
- Ex-felons looking to reintegrate into the workforce
- Designated Community Residents (DCR) living in Empowerment Zones or Rural Renewal Counties
- Vocational Rehabilitation Referrals, including individuals with physical or mental disabilities
- Summer Youth Employees from designated communities
- Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits
- Supplemental Security Income (SSI) recipients
- Long-term Unemployment Recipients, unemployed for 27 weeks or more
By hiring individuals from these groups, businesses not only provide valuable employment opportunities but also qualify for tax credits that can significantly offset hiring costs.
Common Mistakes Employers Make with WOTC
1. Missing Deadlines
One of the most common errors businesses make when applying for WOTC is failing to submit the required forms on time. Employers must submit IRS Form within 28 days of the employee’s start date to qualify for the credit. However, tracking deadlines manually can lead to delays or missed opportunities, especially for larger businesses with high hiring volumes.
Solution: Automation ensures that all deadlines are tracked and met without manual oversight. Automated systems can send reminders to HR teams, ensuring timely submission of required forms and preventing missed tax credit opportunities.
2. Overlooking Eligible Employees
Another mistake businesses make is overlooking employees who qualify for WOTC. This often happens because HR teams may not be familiar with the criteria for the various WOTC target groups. When eligibility is determined manually, it’s easy for qualifying hires to slip through the cracks.
Solution: Automated screening tools can help ensure that every new hire is evaluated for WOTC eligibility based on specific criteria. These tools guide candidates through a series of questions designed to identify their qualification status, ensuring no eligible employee is overlooked.
3. Inaccurate or Incomplete Forms
Errors in the information submitted on Form 8850 or the Department of Labor’s ETA Form 9061 can delay or disqualify an employer from receiving the tax credit. Even small mistakes, such as missing information or incorrect dates, can result in denied applications.
Solution: Automation significantly reduces human error by guiding both candidates and HR professionals through the process. Forms are pre-populated with the correct information, and automated tools check for accuracy before submission, ensuring compliance with federal regulations.
4. Non-Compliance with Federal Guidelines
Failure to comply with federal regulations can lead to penalties and disqualification from the WOTC program. Ensuring that the screening process meets all legal requirements is essential for businesses seeking to claim the credit.
Solution: Automated WOTC screening systems are designed to stay up to date with federal regulations, ensuring compliance at every step. This reduces the risk of costly penalties or disqualification due to non-compliance.
5. Lack of Proper Record Keeping
Employers are required to maintain records proving that an employee was eligible for WOTC, but manual record-keeping can result in lost or incomplete documentation. Without proper records, businesses may struggle to prove their WOTC eligibility during an audit.
Solution: Automation simplifies record-keeping by securely storing all necessary documentation electronically. This ensures that businesses have easy access to the records they need, reducing the risk of errors during an audit.
6. Not Following Up on Certification Denials
Certification denials can sometimes be challenged or appealed, but many businesses miss out on these opportunities by failing to follow up on denials. Without a system in place to review these cases, businesses may leave valuable credits unclaimed.
Solution: Automated tools can monitor certification denials and prompt follow-up actions when necessary. By tracking denials in real-time, businesses have a better chance of challenging incorrect decisions and maximizing their WOTC benefits.
Optimize and Automate your WOTC Processing with HireCredit
Now is the time to start earning valuable business tax credits. Inova’s partner, HireCredit, provides state-of-the-art electronic screening technology that allows your employment candidates to quickly answer screening questions that pre-qualify them for the WOTC credit. In addition, the following are features that your business will receive that set HireCredit apart from other WOTC vendors:
- Real-time prequalification notifications sent to hiring managers
- Survey placement in the recruiting process to ensure compliance with federal regulations
- Survey questions are easy to understand and answer
- Reporting needs determined by you
- Certification denials audited on a weekly basis
- Simple payroll file setup through your Inova at no cost from HireCredit
- Regular updates when qualified and certified individuals have been identified
- No setup or implementation fees
- Provides a compliance service to look for additional tax credit opportunities
Click here to find out more about how Inova and HireCredit can help you maximize your WOTC benefits.
