The Consolidated Appropriations Act of 2021 (CAA) extended several credits available to employers. One of those is the Work Opportunity Tax Credit (WOTC), which has been extended through January 1, 2026. For those unfamiliar with the WOTC, we go over the basics of the credit below.
Work Opportunity Tax Credit- What It Is
The WOTC is a Federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment. This program allows an employer to receive a reduction in their income tax liability of up to $9,600 per approved employee. It is a one-time credit for each qualified new hire – and there is no limit to the number of new hires who can qualify an employer for this tax credit.
Any size for-profit employer may apply and any type of job is acceptable (temporary, seasonal, part-time, and full-time).
In addition to the above targeted groups, effective December 11, 2020, people living in Empowerment Zones are also eligible for a credit up to $2,400. Details can be found in IRS Notice 2020-78. This group has not been qualified for WOTCs since the end of 2017. Through this notice, the IRS will allow employers who hired an individual between January 1, 2018 and December 31, 2020 living in an Empowerment Zone to submit the necessary paperwork and retroactively claim the credit for this time period. An employer must file the necessary paperwork to retroactively claim the credit before January 28, 2021.
The Empowerment Zone areas in SC are located around Columbia and Sumter. To determine if an employee lives in an Empowerment Zone, you can use the Empowerment Zone Address Locator tool on the US Department of Labor website.
Any industry with significant employment and/or a high turnover can benefit from the WOTC. Companies in the following industries are more likely to benefit: manufacturing, retail and distribution, restaurants, hospitality and fast food, trucking, transportation and logistics.
If you have questions or would like to strategically discuss your situation relative to any of these items, we are here to help. Reach out to your WR Partner or your relationship manager.