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The Work Opportunity Tax Credit (WOTC) was originally created in 1996 to assist certain employee groups with employment and economic independence. It’s value to communities, business owners, and franchisees has been significant enough to see its legal renewal over more than two decades. The statute also includes other tax credits for opening a franchise in certain distressed communities and tribal reservations.
More specifically, the WOTC provides a federal tax credit to employers who employ and hire members of certain demographic groups who consistently face employment barriers. This includes qualified veterans; ex-felons; recipients of long-term family assistance, SSI, SNAP; rehabilitation referrals and others.
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It was extended once again through 2020 to encourage employers to hire from often-overlooked pools of prospective employees. This can be an excellent tax benefit for franchises or other businesses that are ready to hire those who want a job and need a step up. The extension of the WOTC and related programs is a testament to their value to the overall economy. Franchisees who use them create goodwill within their communities and reduce their annual federal tax liability.
Easy Paperwork
There are many IRS guidelines for this valuable tax incentive, but it simply requires that a new hire qualify based on their status. Once that happens, the business can claim the WOTC at tax time. Paperwork is simple. Employers and employees complete (1) a certification request form and (2) employee qualification from a local workforce agency.
The certification and qualification documents are then submitted to the IRS within 28 days of a new employee’s first workday. Once the new hire is qualified, the employers can claim the tax credit for that tax year. The tax credit can be significant, ranging between 25% and 40% of the employee’s first year’s wages and, in some situations, up to 50% of the second year’s wages. For example, an employee who works for $10 an hour and averages 30 hours a week will yield a tax credit of approximately $6,000. That is a significant saving for a franchise owner and can be as high as $9,600 for each qualified employee. There is no limit to the number of employees that a franchise can hire within the program.
Plan Ahead
Paperwork is simple, but the timing does matter. It may take some time to get employee certification completed, and there is a minimum number of hours required for the year. So don’t wait. Talk to your tax planner and move forward this year to take advantage of the WOTC credit.
Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.