The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group.
Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit. After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes.
WOTC is authorized until December 31, 2025 (Section 113 of Division EE of P.L. 116-260 -- Consolidated Appropriations Act, 2021).
A "qualified veteran" is a veteran who is any of the following:
The Wounded Warrior Tax Credit doubles the existing tax credit for long-term unemployed veterans with service-connected disabilities.
The Credit for Employer Differential Wage is 20% of up to $20,000 of differential wage payments (e.g. $4,000 tax credit per qualified active duty employee) paid to each qualified employee during the tax year. The credit for Employer Differential Wage Payments is part of the general business credit.
The term "service in the uniformed services" means the performance of duty on a voluntary or involuntary basis in a uniformed service under competent authority and includes:
To be considered a differential wage payment, the payment MUST meet both of the following requirements.
Uniformed services means:
A qualified employee is a person who has been an employee for the 91-day period immediately preceding the period for which any differential wage payment is made.
An eligible small business employer may take a credit against its income tax liability in an amount equal to 20% of the sum of the eligible differential wage payments made to qualified employees during the taxable year.
An employer is an eligible small business employer if:
Learn how to file a certification request by visiting the U.S. Department of Labor WOTC website: https://www.dol.gov/agencies/eta/wotc.
Returning Heroes and Wounded Warrior Tax Credits
Active-Duty Employees of Uniformed Services Credit
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