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    Workstream | 3 min read

    How the Work Opportunity Tax Credit Can Help Your Small Business

    Let’s face it - the US government hasn’t been very successful in helping businesses stay afloat throughout the coronavirus pandemic. Financial assistance has so far been insufficient and the distribution of aid has not been implemented as smoothly as we would have liked.. Let’s do a quick recap, shall we?

    The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Mar 27 2020, providing a $2 trillion relief fund for businesses. However, the American Hotel & Lodging Association (AHLA) President and CEO Chip Rogers said that the CARES Act is “unworkable for hoteliers” as it doesn’t consider actual operational costs. Meanwhile, the Paycheck Protection Program (PPP), a crucial component of the CARES Act, isn’t doing too well either. From giant chains benefiting instead of smaller companies who are in dire need, to the extremely slow rate at which small businesses are receiving the funds, the PPP has been a disaster. Needless to say, government aid hasn’t been very useful.

    As some states begin to reopen businesses, hiring from a huge pool of laid-off and furloughed workers now poses a huge challenge administratively and financially. With the aforementioned forms of aid seemingly incapable of helping businesses much, what other alternatives can you turn to?

    Work Opportunity Tax Credit 

    The Work Opportunity Tax Credit (WOTC) is a Federal tax credit that aims to encourage employers to hire specific groups of people who have traditionally faced a lot of difficulties when looking for a job. Such groups include ex-felons, veterans, recipients of long-term family assistance - to name a few.

    Who is eligible?

    How-the-Work-Opportunity-Tax-Credit-Can-Help-Your-Small-Business-3

    How to apply?

    (1) Fill out IRS Form 8850. Form 8850 (Pre-Screening Notice and Certification Request) is for pre-screening of employees and making a request to have the newly hired employee certified as one belonging to the WOTC target group.

    (2) Fill out ETA Form 9061. Form 9061 (Individual Characteristics Form) lists the individual characteristics of the worker. These include demographic data and other details which provide information on whether or not the applicant belongs to a WOTC target group. The ETA Form 9175 (Long-Term Unemployment Recipient Self-Attestation) should be used in the absence of unemployment insurance wage records.

    (3) Submit all forms. Forms must be submitted to the state workforce agency within 28 days after the new hire’s start date. Failure to do so will result in the application being denied.

    (4) Receive a determination. The state workforce agency will issue a final determination for each WOTC application. Additional information or documentation may be needed. Once an employer receives a certification, he/she can then claim the tax credit with the IRS.

    (5) Claim your tax credit. In general, an employer claims the tax credit by filling up Form 5884 (Work Opportunity Credit). But if the organization is exempted from taxes and is hiring from the veteran target group, he/she should fill up Form 5884-C (Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans) instead.

    How Much Can I Claim?

    Well, it depends on a few factors - the number of hours worked and the salary the hires receive. The amount of tax credit that can be claimed ranges from $1,200 to $9,600. WOTC workers must have worked at least 120 hours in the first year of employment for their employers to qualify to claim the tax credit. Generally, the credit represents 25% of eligible workers' wages who work at least 120 hours in the first year.

    What’s Next?

    It’s clear by now that the US government isn’t the most efficient when it comes to distributing aid to all the businesses who are in desperate need of it right now. With so many businesses reopening in the coming weeks, hiring becomes a top priority even in a time when financial resources are tight. As a business owner, applying for the WOTC could just be the lifeline to help your business get through this tough period, as you can save some money while hiring at the same time.

    For more tips and insights on how to survive the current financial crisis, check out the Workstream blog. You can also contact us to find out more about how the WOTC can work for you.

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    Nigel Seah

    Nigel is not just a marketer at Workstream, he is also a graduate of Psychology and Marketing of Singapore Management University. He has multiple experiences in various areas of marketing - advertising, email marketing, and content writing. Fun fact, prior to joining Workstream, he took a semester off school to intern at SAP in Brazil.

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