Overview

The Work Opportunity Tax Credit (WOTC) is a federal income tax benefit administered by the U.S. Department of Labor (DOL) for employers who hire individuals from specified target populations. WOTC reduces a business’s federal tax liability, serving as an incentive to select job candidates who may be disadvantaged in their efforts to find employment.

The main objective of this program is to enable individuals to become employed, earn a steady income and become contributing taxpayers. WOTC joins other workforce programs that help provide incentives for workplace diversity and improve access to good jobs for American workers.

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News for Employers & Consultants

Update: January 28, 2016

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extends the Work Opportunity Tax Credit (WOTC) retroactively for hires from December 31, 2014 to December 31, 2019.  The Employment and Training Administration (ETA) and the Internal Revenue Service (IRS) will be issuing formal guidance soon and updating WOTC forms as needed.

Summary of Legislative Provisions

The PATH Act amends Section 51(c)(4) of the Internal Revenue Code of 1986. In summary, Title I—“Extenders,” Subtitle B—“Extensions Through 2019,” Section 142, “Extension and Modification of Work Opportunity Tax Credit,” of this Act:

  • Retroactively reauthorizes the WOTC program with all its current target groups, without changes or new provisions, for a 5-year period, after December 31, 2014 to December 31, 2019
  • Introduces a new target group, a Qualified Long-term Unemployment Recipient, which is defined as any individual who is certified by the designated local agency as being in a period of unemployment which

Qualified Wages for New Qualified Long-Term Unemployment Recipient Target Group

The 1996 legislative provisions that apply to most adult non-veteran target groups for “qualified wages” and amount of the tax credit employers can claim for new hires certified under those target groups also apply to the new target group employees hired after December 31, 2015. Qualified wages for certified new hires under the new Qualified Long-term Unemployment Recipient target group are also capped at $6,000 dollars, during the first year of employment, for a maximum tax credit of up to $2,400 depending on the number of hours the new hire works (how they meet the provisions of the Minimum Employment or Retention Period).

Tax Credit Amounts & the Minimum Employment or Retention Period for New Qualified Long-Term Unemployment Recipient Target Group

  • For WOTC certified new hires working at least 120 hours, employers can claim 25% of the first year wages paid up to $6,000 for a maximum income tax credit of up to $1,500
  • For WOTC certified new hires working 400 hours or more, employers can claim 40% of the first year wages up to $6,000 for a maximum income tax credit of up to $2,400
  • The PATH Act retroactive extension applies to individuals who begin work for an employer [and are certified under any of the existing current target groups] after December 31, 2014
  • The PATH Act provisions that cover the new target group apply to individuals who begin to work for an employer after December 31, 2015 (on or after January 1, 2016)

State Workforce Agencies may accept current forms 9061 or 9062 (expiration date: August 31, 2018) that indicate “Long-term Unemployment Recipient” in the top margin, right corner underneath the expiration date.

NOTE:  If the IRS provides a transition relief for the 28-day certification requirement, the IRS will provided this information and guidance on its website at https://www.irs.gov/.

All related questions should be sent to the Ask.WOTC@dol.gov e-mail account.

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Qualifying for WOTC

Employers are eligible for a tax credit when hiring individuals with specified barriers to employment identified as target groups. TWC will verify for employers which target group applies. Tax credits currently are available for hires in the following categories:

Veterans

Target Group Maximum Tax Credit
Disabled veterans with a service-connected disability who have been unemployed for at least 6 months $9,600
Veterans who have been unemployed for at least 6 months $5,600
Disabled veterans with a service-connected disability $4,800
Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits $2,400
Veterans who have been unemployed for at least 4 weeks $2,400

Non-Veterans

Target Group Maximum Tax Credit
Long-Term Family Assistance recipients who are members of a family that has received Temporary Assistance for Needy Families (TANF) benefits for at least 18 consecutive months $9,000
TANF recipients $2,400
Ex-felons
Designated community residents
Vocational rehabilitation referrals
SNAP recipients
Supplemental Security Income recipients
Summer Youth program participants who are 16 to 17 years old, work between May 1 and September 15, and live in an empowerment zone $1,200

 

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Applying for WOTC

Within 28 days of the employee’s start date, employers hiring individuals from one or more of the identified target groups must complete the following:

Mail, fax, or email forms to:

Texas Workforce Commission
WOTC Unit
101 E 15th St, Rm 202T
Austin, TX 78778-0001
Fax: 512-463-8819
wotc@twc.state.tx.us

If filing the above forms by email, the attached forms must be password-protected, and the password must be sent in a separate email to the same email address. Employers/consultants submitting forms by fax or email will be required to maintain the original forms for the required retention period (5 years for certifications and 1 year for denials).

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Requesting a Claim Reconsideration

When a WOTC application is denied, if the employer has documentation to indicate that the application was eligible for certification, the employer may request that the claim be reconsidered for a specific target group. If you would like to request a claim reconsideration, please provide the documentation listed below for the applicable target group. All requests for reconsideration must include supporting documentation in order to be processed. Please include the WOTC claim/control number listed on the denial letter or denial report.

Veteran Target Groups (includes disabled veteran and unemployed veteran)

  • Applicant’s DD-214 (record of military service)
  • Rating Letter (provides service-connected disability rating required for disabled veterans)

No unemployment documentation is necessary. Texas’ WOTC unit will verify the "unemployment" requirements for disabled veterans and unemployed veterans.

Ex-Felon

  • Court documentation indicating felony conviction; or
  • If a federal conviction, parole/probation officer information including name and phone number

DCR Designated Community Resident)

Documentation to verify address (e.g., a current utility bill, telephone bill, or driver license) indicated on IRS Form 8850

Vocational Rehabilitation

  • Individualized Plan for Employment (IPE) documentation indicating open date, close date, and/or last date of service
  • Vocational counselor information including name and phone number

Out-of-State Benefits

If you have information that indicates the applicant received Temporary Assistance for Needy Families, Supplemental Security Income, Supplemental Nutrition Assistance Program benefits, or unemployment benefits from another state, please provide the name of the state, and the Texas WOTC unit will submit an out-of-state request to the indicated state.

Mail request and supporting documentation to:

Texas Workforce Commission
Attn: WOTC Unit
101 East 15th Street, Room 202T
Austin, TX 78778

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Responding to a Needs Request

When an incomplete WOTC application is submitted by the employer, TWC's WOTC Unit will send a needs request letter to the employer. The employer must respond within 60 days or the application will be closed.

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Calculating the Tax Credit

The tax credit amount under the WOTC program depends on employee retention. For most target groups, WOTC is based on qualified wages paid to the employee for the first year of employment. The credit to for-profit employers is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours, and 40% for those employed 400 hours or more. The credit to non-profit employers is 16.25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours, and 26% for those employed 400 hours or more. For Long-Term Family Assistance recipients, WOTC is based on a two-year retention period.

Veterans
Target Group Wages Up To For-Profit 25% For-Profit 40%  Non-Profit 16.25% Non-Profit 26%
Disabled veterans with a service-connected disability who have been unemployed for at least 6 months 24,000 6,000 9,600 3,900 6,240
Veterans who have been unemployed for at least 6 months 14,000 3,500 5,600 2,275 3,640
Disabled veterans with a service-connected disability 12,000 3,000 4,800 1,950 3,120
Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits 6,000 1,500 2,400 975 1,560
Veterans who have been unemployed for at least 4 weeks 6,000 1,500 2,400 975 1,560
Non-Veterans
Target Group Wage Cap For-Profit 25% For-Profit 40% For-Profit 50%
Long-Term Family Assistance recipients who are members of a family that has received Temporary Assistance for Needy Families (TANF) benefits for at least 18 consecutive months (First Year) 10,000 N/A 4,000 N/A
Long-Term Family Assistance recipients who are members of a family that has received Temporary Assistance for Needy Families (TANF) benefits for at least 18 consecutive months (Second Year) 10,000 N/A N/A 5,000
TANF recipients 6,000 1,500 2,400 N/A
Ex-felons 6,000 1,500 2,400 N/A
Designated community residents 6,000 1,500 2,400 N/A
Vocational rehabilitation referrals 6,000 1,500 2,400 N/A
SNAP recipients 6,000 1,500 2,400 N/A
Supplemental Security Income recipients 6,000 1,500 2,400 N/A
Summer Youth program participants who are 16 to 17 years old, work between May 1 and September 15, and live in an empowerment zone 3,000 750 1,200 N/A

 

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State of Texas Tax Refund

The State of Texas Tax Refund for Employers of TANF or Medicaid Clients is another tax benefit for employers. To qualify, an employer must:

  • Pay certain State of Texas taxes
  • Have paid wages during the first year of employment to a Texas resident who received at least one month of TANF or Medicaid benefits within six months of the employee start date
  • Have provided and paid part of a qualifying employee’s HMO health plan, self-funded or self-insured ERISA plan, or a health plan approved by the Texas Commissioner of Insurance

Under the State of Texas Tax Refund for Employers of TANF or Medicaid Clients program, an employer may receive a refund of up to $2,000 for each qualifying employee hired.

To apply, complete TWC Form 1098, Application for Refund of Taxes Paid to the State of TexasPDF.

Mail form to:

Texas Workforce Commission
WOTC Unit
101 E 15th St, Rm 202T
Austin, TX 78778-0001

Forms must be mailed on or after January 1 and before April 1 of the calendar year following the year taxes and wages were paid.

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