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Salt Lake City Bookkeeping Blog

WOTC: The Win-Win Opportunity for Your Small Business

Posted by Leanne Armstrong on Jul 6, 2017 9:00:00 AM

WOTC- The Win-Win Opportunity for Your Small BusinessSmall business owners are pretty generous people. Whether they’re sponsoring staff events, serving as mentors to budding entrepreneurs, or donating to local charities, many business owners regularly look for ways to give back to the community. The glow that comes from giving is often reward enough for such acts of compassion. But it’s always a bonus when you discover that paying it forward can sometimes mean being paid back.

The Working Opportunity Tax Credit

Embracing a charitable mindset can benefit your business in a variety of ways. The goodwill you generate within the community can increase awareness of your brand, and improve customer loyalty. It can also pay dividends when it comes to creating a workplace culture that encourages commitment and inspires success. In fact, research suggests that most employees prefer to work for socially responsible companies.  

But one of the biggest returns for many business owners who choose to invest in the people that live where they work, comes in the form of tax incentives. The WOTC doesn’t stand for Winning Opportunity Tax Credit, but it easily could do. Rather, the Working Opportunity Tax Credit is a federal tax incentive for business owners who hire workers from eligible target groups.

Veterans, summer youth job-seekers, and those from needy families are just some of the people the US government considers as having significant barriers to employment. These individuals often have difficulty finding jobs, and businesses that employ them may be eligible for significant tax savings.

Why Everyone Stands to Win

One of the great things about the WOTC is that it encourages diversity in the workplace. It also helps those in eligible groups to make the move toward financial self-reliance. From a big-picture perspective, when an individual earns a regular income, they also become a regular taxpayer, and contributing to the American economy means everyone benefits.

On a more personal level however, each eligible new hire you claim qualifies your business for a one-time tax credit of as much as $9600. And there are no limits on the number of eligible individuals you can hire. Over $1 billion in tax credits are claimed under the WOTC program each year, and here are a few of the benefits:

  • it helps community members in need to find – and hang onto – good jobs,
  • requires little in the way of paperwork on the part of the employer, and
  • can lower the cost of doing business for your company

Many would view this as a win-win scenario.

How Much Can I Claim?

The WOTC is one of those tax advantages that’s subject to changes in governmental policy. So, it’s always recommended that you check in with your bookkeeping or finance professional for the most up-to-date information about this, or any other tax credits your small business may be eligible to claim. In general, however, the amount of your WOTC claim as an employer will depend on:

  • the specific target group of your new hire,
  • the wages you paid to that hire during their first year of employment, and
  • the number of hours they worked in that time

For example, for most target groups, if the employee you hired worked at least 120 hours during their first year of employment, your business can claim as much as 25% of their wages during that period as a tax credit (up to the maximum amount allowed). If they worked at least 400 hours, you can claim as much as 40%.

The figures are a little different, and include the new hire’s second year of employment, if the individual is a member of the TANF (Temporary Assistance for Needy Families) target group. The Department of Labor’s WOTC calculator can help you figure out how much of a tax credit your business might be entitled to claim.

The Bottom Line

There are many individuals in our local communities who are in the unfortunate position of being unable to find employment. Those who qualify under the WOTC program tend to be from groups that face unwarranted prejudices in the hiring arena, or that have been historically underemployed for this and various other reasons.

It’s not uncommon for new hires who’ve been struggling along, possibly with the help of government assistance, to strive to be more productive and loyal employees over the long term - simply because obtaining a good job represents such an incredibly valuable opportunity in their eyes. Enthusiastic team members, tax credits, AND the chance to help those down on their luck in a meaningful way? It’s tough to see a downside.

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Topics: Small Business Owner, Tax Tips, Tax Compliance