Work Opportunity Tax Credit
An employer who hires a person with a criminal record can save money thanks to the Work Opportunity Tax Credit (WOTC). This federal tax credit serves as an incentive for employers to hire, train, and retain job seekers who are among nine groups—including former felons who are hired within one year of their date of conviction or date of release from prison—who often experience barriers to employment. This credit can reduce an employer’s federal income tax liability by as much as $2,400 per qualified new worker.
Applying is easy; get an application and information from your local or state WOTC coordinator who can be found in Resources, Information, and Assistance.
Other Federal and State tax credits may also be available so we recommend employers check with their state treasury departments or departments of labor to find out if there are additional incentives available or the U.S. Department of Labor's site.
The Small Business Job Protection Act of 1996 initially authorized the Work Opportunity Tax Credit. Each year the tax credit has to be reauthorized to remain available to businesses who are from the nine target groups of job seekers. On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extends and modifies the WOTC Program (Section 142) and the Empowerment Zones (EZs) (Section 171). In summary, the PATH Act retroactively reauthorizes the WOTC program for a five-year period, from January 1, 2015 to December 31, 2019.
Important WOTC Facts and Updates
1. There is no limit to the number of new hires that an employer may claim.
2. Wages paid to temporary, seasonal, part-time, and full-time employees qualify for the credit.
3. Employers need only complete a one-page form by the day the job offer is made and file another one-page form within 28 days of hiring an eligible employee.
4. The earnings test for former felons is eliminated.
5. Rehires are not eligible unless they qualified previously.
6. Sorry, wages paid to relatives do not qualify for tax credit.