How much money can I make with WOTC?

The answer to this simple question relies on a number of factors

The Work Opportunity Tax Credit (WOTC) program has rewarded businesses who hire and retain disadvantaged job seekers with valuable tax credits since 1996. Many people have heard of WOTC, but participating in it effectively includes a learning curve.

In this blog, we will answer the question we hear most frequently as WOTC experts: How much money can I make with WOTC?

WOTC formula

The amount of money you can make with WOTC depends on several factors, including your:

Industry
State
Basis of certification for each WOTC employee
Number of WOTC-certified new hires
Number of hours worked by WOTC-certified new hires

However, a simple WOTC formula might look like this:

TOTAL WOTC CREDIT = ((WOTC-certified new hires working 120-399 hours x number of hours worked x pay rate x 0.25) + (WOTC-certified new hires working >400 hours x number of hours worked x pay rate x 0.4)) – amount exceeding each WOTC-certified employee’s maximum allowable credit

Confused? Read on for a breakdown of the various factors that affect the amount of money you can make with WOTC.

Industry

Our experience has revealed that about 20% of all new hires across industries are eligible for WOTC. Although nothing fundamental about your industry affects how much money you can make with WOTC, certain industries tend to hire more WOTC-eligible workers than others. As a result, businesses in certain industries can more easily make money with WOTC as compared to businesses in other industries.

Here’s a list of industries with the highest percentage of WOTC-eligible new hires:

20%-35%: Skilled trades; light industrial; office/clerical; non-profits
15%-25%: Restaurants; construction; trucking
10%-15%: Professional services staffing
8%-15%: Healthcare staffing

State

Since WOTC is a federal program administered by state workforce agencies, the amount of money you can make with WOTC depends on how many new hires you certify with your local WOTC state workforce agency. Our experience has revealed that certain states certify workers from certain WOTC target groups at variable rates. For instance, Colorado, Connecticut, Illinois, Massachusetts, Michigan, and Nebraska generally have the most efficient state workforce teams, while Delaware, Indiana, Maine, New Jersey, Oklahoma, and Utah tend to have the least efficient processes. The efficiency of certifying new hires in each WOTC target group can also vary by state.

Number of new hires

There is no limit to the total amount of WOTC credit you can claim, so long as all of your credit is substantiated via Form 5884. Therefore, a percentage of all wages paid to every WOTC-certified new hire can result in valuable tax credits, whether you hire 10, 100, or 10,000 certified employees per year.

Basis of certification

WOTC rewards employers who hire and retain workers from certain disadvantaged target groups. These target groups include unemployed veterans, TANF recipients, SNAP recipients, residents of Empowerment Zones or Rural Renewal Counties, ex-felons, and more.

The basis of your new hires’ WOTC certification affects the amount of money you can make with WOTC because the maximum amount of credit you are allowed to claim varies according to each new hire’s basis of certification. You can claim a maximum credit of $2,400 for employees from most target groups. However, you can claim a maximum of $9,600 for new hires certified as veterans or TANF recipients. On the other hand, new hires certified for WOTC on the basis of being a summer youth employee living in an Empowerment Zone have a smaller credit cap–just $1,200.

Therefore, you can make more money with WOTC by understanding the maximum allowable credits for each target group, and hiring strategically as a result of your understanding.

Hours worked

The WOTC program is designed to reward businesses who retain disadvantaged job seekers. Otherwise, employers may be incentivized to rapidly hire and fire these individuals to accumulate tax credits. For this reason, businesses can claim 25% of a certified new hire’s total wages as WOTC credits only after they work at least 120 hours. Once the employee works at least 400 hours, the employer is allowed to claim 40% of their total wages, up to the maximum allowable credit.

Therefore, the number of hours your WOTC-certified employees work greatly affects the amount of money you can make with WOTC.

How Arvo helps

Ready to make money with WOTC? Arvo Tech has helped businesses navigate this lucrative but complicated tax credit program for over ten years. Whether you are brand new to WOTC, or seek to optimize your current WOTC participation, our team of tax experts is here to help you boost your bottom line by up to 40%.