Please Explain The Work Opportunity And Welfare To Work Tax Credit (Wotc).

The purpose of the WOTC is to help individuals who qualify as a member of a target group to get a job and to help employers who hire these individuals by giving them a credit on their federal taxes.

The WOTC target groups are as follows:

  • Qualified recipients of Temporary Assistance to Needy Families (TANF).
  • Qualified veterans who are receiving Food Stamps.
  • Qualified economically disadvantaged ex­felons hired no later than one year after conviction or release from prison.
  • High risk youth ages 18 through 24 who reside in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community.
  • Vocational Rehabilitation referrals.
  • Qualified summer youth ages 16 through 17 who reside in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community and have not previously worked for the employer seeking this tax credit.
  • Qualified Food Stamp recipients ages 18 through 24.
  • Qualified recipients of Supplemental Security Income (SSI).
  • Long­term recipients of TANF/Aid to Families with Dependent Children (AFDC). (Individuals hired on or after January 1, 1998.)

The amount of the credit varies by target group. The tax credit for target groups A, B, C, D, E, G, and H is 40 percent of qualified first year wages up to $6,000 if the individual is retained for at least 400 hours. If the individual is retained less than 400 hours but at least 120 hours a 25 percent tax credit is available on qualified first year wages up to $6,000.

The exception is target group F (summer youth). The maximum amount of wages to which the tax credit may be applied shall not exceed $3,000.

The tax credit for target group I, long­term recipient of TANF/AFDC hired on or after January 1, 1998, is 35 percent of first year qualified wages up to $10,000 and 50 percent of second year qualified wages up to $10,000. The individual must be retained at least 180 days or 400 hours. In certain circumstances you may be able to claim either the 40 percent of $6,000 tax credit or the 35 percent of $10,000 tax credit.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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