Overview
Work Opportunity Tax Credit (WOTC) is a federal tax credit program that offers incentives to employers who hire individuals who have consistently had difficulty in securing and retaining employment. The credit helps offset the federal tax liability of private, for-profit employers. The program covers only new hires that have not worked for the employer in the past.
The Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-38) signed by President Bush on May 25, 2007 includes an extension of the Work Opportunity Tax Credit program effective May 26, 2007 through August 31, 2011. This bill created the following changes:
Created a new category for Disabled Veterans who are entitled to compensation for a service-connected disability. The disability has to be at least 10% or higher and they need to be hired within one year of being discharged from active duty, or were unemployed for any 6 months of the year prior to being hired.
The Vocational Rehabilitation target group was expanded to include individuals who completed a work plan developed and implemented by an employment network. The High Risk Youth group has been renamed Designated Community Residents and the age expanded to include individuals who are between 18 and 39.
The American Recovery and Reinvestment Act of 2009 temporarily added two new target groups to WOTC for qualified individuals starting work in 2009 or 2010. The groups are – Unemployed Veterans and Disconnected Youth.
Target Groups
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- IV-A Recipient - A member of a family that has received Temporary Assistance for Needy Families (AFDC/TANF) for any nine (9) months within the last 18 months ending on the hire dates.
- Veterans - Active duty veterans who have received food stamp assistance for at least three (3) months of the last fifteen (15) months ending on the hire date.
- Ex-Felons - A felon that has been convicted or released from prison of a felony within one year of the hire date.
- Disabled Veteran – A veteran entitled to compensation for a service-connected disability and hired not more than 1 year after discharge or release from active duty, or unemployed for 6 months during the 1 year period ending on the hiring date.
- Unemployed Veteran – A veteran beginning work January 1, 2009 and before 2011 that has been discharged or released from active duty during the 5-year period ending on the hiring date, and having received unemployment compensation for not less than 4 weeks during the 1-year period ending on the hiring date.
- Designated Community Resident – Individuals between 18 but not yet 40 years old who live in Federal Empowerment Zone or Enterprise Community (EZEC).
- Vocational Rehabilitation – A disabled person who has completed or is completing rehabilitative services from an approved state or veteran’s agency.
- Ticket-to-Work Participants – A person who is enrolled in the ticket-to-work program through the Social Security Administration’s employment network.
- Summer Youth Employees – Youth between 16 and 17 years old, employed between May 1 and September 15, who live in an Empowerment Zone or Enterprise Community (EZECs).
- Disconnected Youth – A youth age 16 to 24 on or before the hire date and started work January 1, 2009 and before 2011. In addition, the disconnected youth must attest to criteria below:
- Food Stamp Recipient – A person between the ages of 18 but not yet 40 years old and a member of a family that has received food stamps for the last consecutive six (6) months, or received Food Stamps for at least three (3) of the last five (5) but are no longer eligible to receive.
- SSI Recipient – A person who has received Supplemental Security Income (SSI under Title XVI of the Social Security Act) benefits for any month ending within the last 60 days.
- Long-term Family Assistance Recipient – A person that is a member of a family that: