Work Opportunity Tax Incentive May Drop More Money to Your Bottom Line—7 Top Questions Answered
What is it?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to hospitality company employers who hire individuals from target groups that face significant barriers to employment. The purpose of the WOTC program is to enable individuals to gradually move from economic hardship to steady employment, while rewarding employers by lowering their federal income tax liabilities.
What other target groups qualify?
Included target groups are public assistance recipients, veterans, youth and those with previous felony convictions. Effective January 1, 2016, the list of targeted groups is expanded to include qualified long-term unemployment recipients, defined as any individual who is certified as being unemployed for 27 consecutive weeks or more, including a period in which the individual received federal or state unemployment compensation.
What are the benefits to the employer?
Depending upon the target group, an employer can receive up to $9,600 in potential tax credits per employee. The WOTC program reduces an employer’s federal income tax liability, and WOTC data can also be used to assist in qualifying for other state tax credits and incentives. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit. The WOTC program provides a platform for hospitality companies to offset rising costs of doing business like labor (especially in those states with an increasing minimum wage and/or reduced tip credit), food and real estate.
As an employer, how do I know if I qualify to participate in the program?
Any private hospitality company that hires a new employee from an eligible target group may apply for WOTC. There is a minimum of 120 hours a qualified employee would have to work to generate a credit. There is no limit on the number of individuals an employer can hire in order to qualify to claim the tax credit.
How do I get started?
There are a few simple steps to follow to apply for WOTC. Ordinarily, there is a 28-day period in which forms need to be submitted to the state’s workforce agency in order to qualify an employee once hired. However, as a result of the Protecting Americans from Tax Hikes (PATH) legislation, employers can retroactively qualify employees hired as of January 1st, 2015. The time period to retroactively qualify employees will end as of September 28, 2016.
Do current employees qualify?
Yes. As hospitality is such a labor intensive industry, it is likely you are already hiring individuals in one or more of the defined target groups. With labor and other operating costs increasing, utilizing tax incentive programs like WOTC may drop more money to the bottom line. Besides moving forward and putting together a process to capture new employees for the WOTC, it is not too late to qualify retroactively under the PATH Act.
If you want to learn more about the Work Opportunity Tax Incentive, and to see if your business qualifies, contact please contact Stephanie O’Rourk, at firstname.lastname@example.org or 404-250-4079. Stephanie is a member of CohnReznick’s National Hospitality Practice. CohnReznick is an accounting, tax and advisory firm specializing in serving the needs of the hospitality industry.