WOTC Demystified

Evil HR Lady

Nov 29

What if you could offset some of the cost of hiring without impacting your applicant experience or burdening your hiring managers? It sounds like a dream, but it can be done with a properly managed process around the Work Opportunity Tax Credit (WOTC). What's WOTC?

The Work Opportunity Tax Credit is a federal tax credit that provides the opportunity to get a tax credit if you hire people who have "faced significant barriers to employment." Who are these potential employees? They are

Individuals who have been convicted of a felony or recently released from prison for a felony
Recipients of state assistance (TANF) or are a member of a family that is receiving state assistance under part A of title IV of the Social Security Act (SSA)
Some veterans
Residents in areas designated as empowerment zones or rural renewal counties
Individuals referred to an employer following completion of a state or veterans rehabilitation plan or program
Individuals whose families are recipients of supplemental nutrition assistance (SNAP) under the Food and Nutrition Act of 2008
Recipients of supplemental security income benefits under title XVI of the SSA
Individuals experiencing long-term unemployment

It's a great deal–both for job candidates and businesses. Someone who may have struggled to find work gets a job, and the employer may receive a tax credit. What is there to lose?

Nothing, if you do it right, but the IRS is paying close attention, and that means you should too. The IRS released a statement a few weeks ago, reminding people about complying with the requirement to prescreen.

Prescreening is required before you make the job offer. Otherwise, you can't apply for the WOTC credit. You have to conduct a candidate prescreening based on IRS Form 8850, but it has to be done before the date of a job offer. Why is this important?

First, based on the recently released statement, the IRS is likely signaling that they know that not every company follows the rules, and if the IRS is aware that not everyone is following the rules, there's a chance of increased audits, which are not fun for anyone.

Second, it's essential to understand the magnitude of the impact. If your policies and practices don't comply and it appears that you're screening some employees after offering them a job, you could potentially trigger an audit to review the screening process for all employees.

Don't let this scare you! It's easy enough to comply with the IRS policy if you use a WOTC service that is designed to comply. Providers like ADP provide a WOTC solution that is designed to comply with the prescreening rules, integrates seamlessly with many Applicant Tracking Systems (ATS) and provides filing and administration for a hand-off solution for busy HR departments.

WOTC has been around since 1996 and significantly benefits employers. Screening for qualification happens at many companies, so candidates likely won't blink when you ask them the questions.

And while you may not think this applies to your business because you don't hire people who have "faced significant barriers to employment," but you probably do. Remember, recruiters and hiring managers can't visually assess WOTC eligibility. You can't tell by looking at someone if they qualify–only the screening questions can do that.

For instance, a veteran can qualify if they have been unemployed for just four weeks! That may bring you a nice tax break, and you'll only know if you ask and follow a compliant and timely process.

Having WOTC screening incorporated into your applicant tracking system helps remove the burden on recruiters and hiring managers. You don't have to worry about completing the proper paperwork on time because the applicant fills it out as part of the application workflow. And you may be eligible for tax credits for every new hire who qualifies.

Don't think of it as a burdensome problem. Electronic applications, document uploads, and electronic signatures make compliance easy, and the benefits are great. Plus, actively recruiting people who fit these qualifications can bring a financial benefit for your company from your existing candidate pool.

Partnering with the right company to help you comply with the WOTC rules can help you breathe easier and reap financial benefits.