The Work Opportunity Credit and a Thriving Workforce (WOTC)

I know an amazing business owner who is always talking about the Triple Bottom Line. You’ve likely heard of the bottom line – everyone knows knows that in order to run a business, you’ve got to be able to make money. So naturally, many owners are really tuned into their bottom line.  

What is the Triple Bottom Line? 

The Triple Bottom Line is a principle that expands the principles of making money, profit,  and adds two additional categories: People & Planet. People refers to a business or organization that is committed to how their operation impacts society. They may consider ‘society’ as their actual employees and their families, or they may broaden their definition to include society as a whole. Planet, refers to the organization’s impact on our physical environment, so they may add sustainability and green initiatives to their scope of what it means to be a successful business.  

Running and operating businesses is a rewarding and noble effort, and when you have committed visionaries who look beyond their own pocketbook into the realms of Profit, People, and Planet, the entire world can be positively impacted by the operation.  

Today, I’m sharing a little bit about the Work Opportunity Tax Credit, what it is, who qualifies, and most importantly, why this incentive ultimately impacts your local community in a much larger way than you could possible imagine.  

Here are the basics of the Work Opportunity Tax Credit:  

The Work Opportunity Tax Credit is a reward and incentive for the business owner committed to PEOPLE, specifically, people who likely need a second chance at employment or have never been employed. The work opportunity tax credit is an incentive that encourages employers to hire people who need second chances.  

What is the Work Opportunity Tax Credit? 

The Work Opportunity Tax Credit (WOTC) is a compelling incentive for employers and HR directors to explore when considering their hiring strategies. Designed by the Internal Revenue Service (IRS), the WOTC aims to encourage businesses to hire individuals from specific target groups who often face barriers to employment. These groups include veterans, individuals with disabilities, long-term unemployed individuals, ex-felons, and more. By tapping into the WOTC program, employers can diversify their workforce and potentially access significant tax savings. In this blog, we will delve into the details of the Work Opportunity Tax Credit, outlining its benefits, eligibility criteria, and application process, providing a comprehensive guide for businesses seeking to leverage this program to their advantage. 

How much is the WOTC incentive? 

Tracking the Work Opportunity Tax Credit (WOTC) can yield substantial benefits for employers, both in terms of financial savings and social impact. The potential tax credits vary based on the target group an individual belongs to, ranging from $1,200 to $9,600 per qualified employee. For instance, a veteran with service-connected disabilities falls within the higher range, while other target groups have varying credit amounts. To illustrate, consider a manufacturing company that hires 100 employees annually. If 20 of these hires qualify for the WOTC, with an average tax credit of $1,800 each, the company could potentially receive a total tax credit of $36,000. This credit directly reduces the company’s tax liability, effectively contributing to improved bottom-line profitability. Such a scenario underscores the financial advantage of diligently tracking and applying for the WOTC, offering businesses a practical means to enhance their recruitment strategies while enjoying significant tax incentives. 

Second Chance Hires: Who qualifies for WOTC? 

The Work Opportunity Tax Credit (WOTC) extends its benefits to a range of employees who belong to specific target groups, each with their own set of qualifications. These groups include, but are not limited to: 

1.  Veterans 

2. individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits,  

3. Temporary Assistance for Needy Families (TANF) recipients,  

4. ex-felons,  

5. individuals with disabilities,  

6. those who have been unemployed for an extended period.  

Employers must follow a structured procedure to determine eligibility during the onboarding process.

Firstly, they provide the potential employee with Form 8850, the Pre-Screening Notice and Certification Request for the Work Opportunity Credit, along with Form 9061 or Form 9062 (depending on the employee’s qualification group). The candidate then completes the necessary sections of these forms, which may include details about their background and circumstances. The employer must submit these completed forms to their respective state workforce agency within 28 days of the employee’s start date. The state agency reviews the information and informs the employer if the employee qualifies for the WOTC. This systematic approach ensures that employers can identify eligible candidates accurately and participate in the program seamlessly, optimizing their potential for tax credits while promoting workforce inclusivity. 

If you are thinking this sounds like a lot of paperwork, time, and energy, you are right. It might not be beneficial to you to receive $1,800 in tax credits. But what if you are that manufacturing company, focused on your triple bottom line, committed to giving potential second chance people jobs, and you want to track for this incentive? 

Is there a way to make this process more simple? The answer is YES!  

Streamlining the Work Opportunity Tax Credit (WOTC) screening process within an electronic onboarding system can significantly simplify the administrative burden for employers. Consider our team at Whirks, a leading provider of human capital management software, utilizing the iSolved platform. With this solution, integrating WOTC screening becomes remarkably seamless. You can effortlessly include Form 8850, the initial Pre-Screening Notice, in your digital onboarding process in isolved AND my team will help you set it up. Whirks does not charge extra for utilizing the electronic onboarding features and not only can you add Form 8850, but you can customize onboarding templates, have employees upload certifications, and sign off on your employee handbook anytime before employment or day one of the job. Curious about electronic onboarding? Check out the best onboarding practices for 2023.  

WOTC PROCESS  

But getting back to Form 8850 and screening for WOTC, a potential hire completes this form, then Whirks’ team takes the reins, expertly handling the subsequent tax filings for Form 9061 or Form 9062 on the employer’s behalf. This collaborative approach frees up employers from the complexities of navigating tax documentation intricacies. Employers using the iSolved platform can confidently rely on the Whirks team to manage the WOTC process efficiently, allowing them to focus on identifying potential hires who meet the qualification criteria. For businesses not yet utilizing Whirks or a similar human capital management solution, I am advising you  to consult with your existing payroll company to explore the possibility of delegating WOTC filings, ultimately optimizing their engagement with this valuable tax credit program. 

Don’t forget to tell your CPA  

After you have considered working with your payroll company to help you track for WOTC, it’s important to let your CPA know that you are beginning to track for WOTC. WOTC tax credits are used against your Federal and State Income taxes in the business, so if you know, for example, that you’ll receive $36,000 in tax credits every year, you have automatically reduced your year-end bill by a very significant number! So having a quick check-in with your CPA to discuss is crucial so that you can build that into your year-end tax projection or reduce your estimated quarterly payments by factoring in your WOTC credits.  

Now that you understand a little more about the Work Opportunity Tax Credit, allow me to make one more point about why this incentive might be something for you to implement, specifically dealing with hiring one potential employee type that qualifies for WOTC.  

WOTC eligible Employee: Ex-Felon 

According to the US Chamber workforce data, the U.S has the highest incarceration rate in the world. Of those incarcerated, 25% of those people are never convicted and released from jail which means that 600,000 people are being released back into society every year that COULD be a potential employee AND although they served time, might not have committed a crime that justified going to jail in the first place.  

It can be incredible difficult for an ex-felon to get a job after jailtime. Consider this workforce report,  

“Formerly incarcerated individuals experience extreme rates of unemployment, hovering around six out of every ten people being jobless from the time of release to four years after release. Compare this rate to the general population, whose peak unemployment rate during the pandemic reached 15%.”  

Now if we were to consider the pros and cons of hiring felons, naturally, questions begin to arise. Not every employer could hire an ex-felon because there could be serious safety or security measures that your industry requires that would limit yoru ability to consider hiring someone who needs a second chance. 

But, what about industries with hire turnover rates or are suffering from serious labor shortages like construction, manufacturing, administrative support, or waste management? Would employers in these markets do well to consider hiring ex-felons? What about emerging industries for technology, app development, and even customer service roles, or enablement positions? 

If we consider some facts for hiring ex-felons, here are some positive outcomes for people, planet, and profits and how they impact each of those P’s  according to this report:  

• Ex-offenders who get a job after prison are less likely to re-offend (PLANET & PEOPLE) less crime is always good!  

• Offenders have relevant work experience — more than 11,000 serving prisoners are employed today, by over 300 businesses or government departments (some industries are experiencing extreme staff shortages! – people)  
• 3 out of 4 people would be comfortable buying from a business that employs ex-offenders (profit, people, and planet!)  

We could continue building a case, especially if we consider the cost of hiring, recruitment costs, staff retention, and of course, the tax advantage you could  gain through WOTC.  

I’m not naive enough to believe that hiring an ex felon, or a veteran, or someone who needs social security income should be hired just because you get a tax credit. We all know that hiring people requires a much larger investment than their salary, and more importantly, the right people are the foundation for all successful operations. Hiring the right people for our team is critical for business operations, for maintaining a good reputation in our markets and community, and creating a safe and happy work environment for employees to thrive should be the aim of every for-profit company.  

But, when you evaluate the Triple Bottom Line, and consider that hiring people who are in IRS-protected categories like an ex-felon could lead to a great return of investment like:  

• Solving your under-staffed-employee issue 
• Producing a positive impact on that said ex-felon by offering them an opportunity to be successful.  
• You could develop someone who has the potential to be a productive person in our society and provide a pathway to help them stay away from a life of crime. 
• You could help be apart of generational change for a family of a second-chance employee  
• AND it could help you achieve your operational goals,  

Well, suddenly stuff like consider second chance applicants and tracking for work opportunity tax credits  just feels a little more meaningful than just making money. When you think about WOTC, more than a tax advantage, I urge you to consider the impact you could be making, and the resourcing of someone who needs someone to take a chance on them. You never know what one caring adult might be able to do for another.  

If you have more questions about the technical side of tracking for the Work Opportunity Tax Credit, check out this article, 8 questions about WOTC, Answered, or schedule a call with our team to see if you qualify.  

If you’re in Memphis, and curious about hiring ex-felons for your business, be sure to check out HopeWorks, a Memphis-based non-profit helping ex-felons reenter the workforce with professional and career training and development.