The Work Opportunity Tax Credit, or WOTC, is a federal tax credit available to businesses hiring individuals from targeted groups who consistently face barriers to employment.
There are many reasons to participate in WOTC – it benefits workers by increasing access to good jobs, it benefits companies by increasing workplace diversity, and it benefits employers by putting money back into their businesses. At Arvo, we want to see employers utilizing this valuable tax credit for all it’s worth. So, how can you get the most out of your WOTC program?
The first thing to know is that credit is available based on wages earned by certified employees in the first year of employment. The first year of employment is not based on the calendar year, but from the time the employee starts with your organization. The more wages certified employees earn in that timeframe, the more credit is available to your business.
The second thing to know is that the number of hours a certified employee works decides the percentage of wages that can be used toward this credit. The more hours a certified employee works, the more credit you earn. So how does it work?
In order to maximize your WOTC Program, it’s crucial to track the number of hours worked by certified employees. There are two important numbers to remember: 120 and 400 hours. Once a certified employee works 120 or more hours, 25% of their wages can count toward WOTC. Once a certified employee works 400 or more hours, 40% of their wages can count toward WOTC which retros back to their very first hour.
For example, If you have an employee earning fifteen dollars per hour. At 120 hours, they’ve accrued $450 in credit for your business. At 399 hours, that employee has now accrued $1,500 in credit.
Once that employee hits 400 hours, your credit amount suddenly jumps from $1,500 to $2,400. And that’s for an employee earning fifteen dollars per hour. The higher the pay, the larger the credit.
In most cases, wages counted toward WOTC are capped at $6,000. Therefore, if a certified employee works 400 or more hours and earns $6,000 or more in wages in the first year of employment, credit is maximized at $2,400.
If an employer has just 10 certified employees earning $15 per hour, but is committed to reaching the goal of 400 hours worked for each employee, that alone equals $24,000 in credit!
Reaching the goal of 120 hours worked for each certified employee will start you on your way to earning credit. Reaching the goal of 400 hours worked will maximize your WOTC credits.
Be sure to reach out to Arvo today to connect with one of our WOTC Experts to get a WOTC Program started for your business. If you’re currently a client of Arvo, reach out to your Client Success Specialist for help reaching your 120 and 400 hour milestones.
About Arvo
Arvo transforms cash flow for businesses through the Work Opportunity Tax Credit (WOTC), Employee Retention Credit (ERC) and other employment tax credit opportunities. Founded by tax experts, Arvo believes in the power of tax credits for improving business finances and built its cloud-based platform to help more businesses unlock the full value of federal and state incentive programs. Backed by technology and unparalleled client service, Arvo collaborates with companies to help them understand their qualifications and delivers actionable insights for leveraging programs that impact hiring decisions and fundamentally improve the economics of their business.