The Department of Labor (DOL) is encouraging employers to take advantage of the Work Opportunity Tax Credit as a way to incentivize them to have a diverse workplace. The tax benefit is essentially a tax break an employer claims when their hiring and onboarding process is inclusive of certain groups of people who usually face a hard time getting employed. This post highlights the types of businesses which can greatly benefit from WOTC.
What Is WOTC?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit targeting employers who hire and retain American workers that tend to face significant challenges in securing jobs. Currently, there’s legislation intending to make the WOTC which was established in 1996, as a temporary tax credit. Over the years, it’s been extended and updated, although it’s coming to an end on December 31, 2025.
The Department of Labor (DOL), which runs the program, outlines the targeted groups which employers need to hire to claim the tax credit. Before claiming the credit, the employer has to screen an employee to qualify them; both have to fill IRS Form 8850 and Form 9061.
With over $1 billion tax credits claimed yearly under the WOTC, this means business owners can manage the challenges of the tight labor market. Employers also get to help improve the well-being of such individuals leveling the workforce.
Which Businesses Qualify for the WOTC?
In general, any employer that hires from the targeted groups qualifies for the WOTC program. Employers are allowed to claim credit after applying and securing certification. However, the IRS has certain limitations, such as nonprofit organizations that only qualify under the Qualified Veteran category. Qualified tax-exempt organizations claim the payroll taxes while taxable employers apply the WOTC as a general business credit against income taxes.
While different types of organizations are welcome to apply for the credit, some industries tend to largely open their doors to these targeted groups. Mostly, these businesses offer jobs that are low-skill and offer minimum wage rates. These are
- Restaurants: The restaurant industry usually hires a large percentage of minimum wage workers, such as servers, bartenders, and cleaners. The majority of restaurant food chains in America have made great strides to hire diverse groups of workers. McDonald’s is known for hiring ex-felons, allowing them to have gainful employment. Since restaurant workers tend to have busy hours, it’s easy for restaurant owners to recover 25% of wages after recording the work hour range of between 120 to 400 hours in the first employment year.
- Construction industry: A construction business owner can claim up to $2,400 after one year of employment. If the firm hires a veteran with service-related disabilities and who has been the recipient of unemployment insurance or compensation for over six months to fill an hourly position, there’s a 40% tax credit on the first $24,000 of wages up to $9,600.As the industry is continually hiring workers, they can quickly meet the DOL’s criteria for qualified hires.
- Transportation: Finding skilled drivers is also a challenge in the transportation industry, making WOTC an attractive incentive. Further, the tax credit can significantly reduce operating costs and increase revenues from offering employment opportunities more so to those who struggle to find work.
- Hospitality: Businesses in the hospitality industry, such as hotels, face high labor costs and turnover rates. The WOTC program offers significant tax savings, allowing them to claim $9,600 per new hire. Since they always need to have a stable workforce, they are not discriminatory to certain groups of people if they’re committed to the roles available.
As the deadline for the WOTC looms and legislators work to make it permanent, employers can play a critical role in helping Americans locked out of being employed. At the same time, they will earn thousands in tax savings, reducing their operating costs and improving revenues if they meet the DOL’s requirements.
We understand it can be challenging to manage the hiring and screening of your new hires. We have the tools and experience to ensure every one of your new workers qualifies so that you can claim the WOTC to improve your profitability and productivity.
