Does Your Small Business Qualify for the Work Opportunity Tax Credit (WOTC) in 2022?

Posted in Offshore Account Update on May 20, 2022 | Share

The Work Opportunity Tax Credit (WOTC) is available to qualifying businesses that employ individuals who are members of certain groups facing barriers to employment. While the WOTC is a long-standing federal tax program, it has recently gained renewed attention with the ongoing worker shortage in the United States. If you are interested in claiming the WOTC for your business in 2022, what do you need to know? Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

Employing Individuals Who Face Barriers to Employment

As the Internal Revenue Service (IRS) explains, the Work Opportunity Tax Credit is available to businesses that “hire workers certified as members of any of ten targeted groups facing barriers to employment.” These workers include:

  • Individuals who have been unemployed for at least 27 consecutive weeks and who have received unemployment benefits during that time
  • Recipients of Temporary Assistance for Needy Families (TANF) benefits
  • Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits
  • Recipients of Supplemental Security Income (SSI) benefits
  • Recipients of long-term family assistance
  • Unemployed veterans
  • Individuals who have been incarcerated
  • Individuals referred by vocational rehabilitation providers
  • Residents of Empowerment Zones and Rural Renewal Counties
  • Summer youth employees residing in Empowerment Zones

Obtaining WOTC Credit Certification

Even if a business employs one or more eligible workers, it cannot simply claim the WOTC credit on its federal income tax return. Instead, it must first request certification from the appropriate state workforce agency (SWA) by filing IRS Form 8850 within 28 days of the start of the worker’s employment. Washington D.C.’s SWA is the Department of Employment Services (DOES).

The WOTC is a One-Time Federal Income Tax Credit

Regardless of how long a company employs a qualifying worker, the Work Opportunity Tax Credit is a one-time tax credit. “This is a one-time credit for each new hire and an employer cannot claim the WOTC for employees who are rehired.” The amount of the credit is determined for each eligible worker based on the wages the worker receives during his or her first year of employment.

Additional Considerations for Businesses Claiming the WOTC Credit

Along with the need to obtain certification and accurately calculate their WOTC credits, there are some additional important considerations that businesses claiming the credit should keep in mind. These include:

  • Businesses claiming the WOTC credit should be prepared to substantiate their claims with supporting documentation in the event of a business tax audit or investigation.
  • Businesses claiming the WOTC credit must also accurately calculate, report and remit their (and their employees’) employment tax liability.
  • Falsely claiming the WOTC credit (or any other business tax credit or deduction) can lead to civil or criminal allegations of federal tax fraud.

Learn More from Washington D.C. Tax Attorney Kevin E. Thorn

If you have questions about the Work Opportunity Tax Credit or any other business-related federal tax matter, we encourage you to get in touch. To schedule an appointment with Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033, email or inquire online today.

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