Healthcare employers can take advantage of different types of tax credits, depending on their circumstances. One of these incentives that can save businesses thousands of dollars is the Work Opportunity Tax Credit (WOTC) program. This federal tax credit program has been renewed and will continue to be available to companies until the end of 2025. It is valuable particularly to healthcare organizations that are open to hiring WOTC-eligible workers as it enables them to channel substantial savings into their businesses.
So, how does the Work Opportunity Tax Credit work for healthcare organizations? This article will explore what the WOTC program is and why it’s relevant for healthcare providers. We’ll also discuss the types of eligible employees, program benefits, and who should use this credit. Finally, we’ll discuss how recruiting and onboarding software can help you manage WOTC easily.
What is the Work Opportunity Tax Credit (WOTC)?
What is WOTC? The Work Opportunity Tax Credit (WOTC) is a general business credit designed to encourage businesses to hire specific groups of people who face significant obstacles to getting job offers. Employers get to lower their federal income tax liability by taking advantage of this tax credit, and WOTC-eligible workers can work towards becoming self-sufficient citizens with a steady source of income.
In healthcare, jobs like nursing, medical assistants, or senior care require a shorter duration to complete training or certification. The lower barrier to entry for such jobs is an opportunity for WOTC-eligible individuals who may be interested in healthcare jobs but have limited financial resources for advanced medical education.
When current job market conditions are tight, businesses that hire WOTC-eligible individuals may benefit in two ways. First, companies are hiring from a pool of candidates that are often overlooked or ignored. In doing so, they may find much-needed healthcare talent from many of those groups.
Second, hiring WOTC-eligible individuals helps the business save thousands in tax credits. These reasons are why the Work Opportunity Tax Credit was created – a win-win for employers and workers.
How Much is the WOTC Tax Credit Worth?
One of the more commonly asked or searched questions about WOTC tends to be: what is the federal work opportunity tax credit worth? The answer varies.
The tax credit you receive for each employee is calculated as a percentage of qualified wages paid during the first year of employment. You could claim a tax credit equal to 40% of a WOTC-eligible employee’s wages if they worked at least 400 hours in their first year of employment.
If they didn’t meet 400 hours but worked at least 120 hours in their first year of employment, then your business can still claim a tax credit of 25% of the employee’s wages. Since there is no limit to the number of WOTC-eligible employees, the credits can add up to sizable savings for your business.
To qualify for the federal work opportunity tax credit program, an employee must work a minimum of 120 hours in their first year of employment. You must wait until the employee accumulates 120 hours before filing for the WOTC. Without the minimum hours, you may not claim WOTC.
Furthermore, each eligible group of workers has a statutory maximum amount of qualified wages that are WOTC-eligible. The total credit per WOTC employee would be 40% of those statutory limits. Here’s a breakdown of the maximum credits available:
Receives SNAP (food stamps)
Veteran Eligibility Based on Disability (hired one year from leaving service)
Veteran Eligibility Based on Disability (unemployed at least six months)
Unemployed Veterans (at least four weeks)
Unemployed Veterans (at least six months)
All Other WOTC Target Groups
Here’s an example for a qualified veteran, one of the WOTC targeted groups of individuals.
You hire a disabled veteran who has been unemployed for six months in the one-year period ending on the hiring date. The employee performs at least 400 hours of service in their first year of employment, and the maximum eligible wages for such individuals is $24,000. Therefore, if you claim 40% of that amount, you will receive $9,600 in tax credits.
In most cases, the maximum wages that qualify for the work opportunity employer tax credit is $6,000, though a few specific groups have higher or lower maximum wages.
Groups that meet the WOTC credit eligibility requirements are as follows:
Gain Insight from Departing Employees
Departing employees can be an information goldmine for your organization. Whether they are leaving to pursue better opportunities or because of performance issues, scheduling an exit interview is crucial.
During the exit interview, an open and honest discussion can help you gather important information and valuable insights on the organization’s weak spots. The answers may even reveal workplace issues of which you are unaware. You can use the information they provide to improve the workplace for the remaining employees.
These are veterans who served on active duty in the United States armed forces for a minimum of 180 days and have been discharged for at least 60 days. Additionally, they must meet at least one of the criteria below:
- Has a service-connected disability that entitles him or her to compensation and who is within one year of discharge (maximum WOTC-eligible wages of $12,000).
- Member of a family receiving Supplemental Nutrition Assistance Program (SNAP) assistance for at least 3 of the past 12 months
- A veteran who was unemployed for at least six months during the prior year (maximum WOTC-eligible wages of $14,000).
- A veteran who was unemployed for at least four weeks but less than six months during the prior year.
Who is Eligible for WOTC?
Employers of all sizes are eligible for WOTC, including taxable and tax-exempt. Eligible WOTC employers must be located in the United States and certain U.S. territories. According to the IRS, taxable employers claim the WOTC against income taxes. Eligible tax-exempt employers can claim WOTC only against payroll taxes and only for wages paid to members of the Qualified Veteran category.
To process WOTC-eligible employees, here’s the paperwork you may need :
- A confirmation letter from your state workforce agency showing an employee is eligible for these benefits.
- The completed pre-screening IRS Form 8850 from the eligible employee.
- A completed DOL Form 9061 after the employee starts work.
- A DD214 if your new hire is a veteran and an additional VA letter if the veteran is disabled.
To claim WOTC for your business, you need:
- IRS Form 5884 for partnerships, S corporations, cooperatives, estates, and trusts.
- Or IRS Form 3800, the General Business Credit, for all other taxpayers and business owners.
It’s important to note that if you claim WOTC on employee wages, you cannot reuse them to claim other employee-based tax credits. They include Employer-Paid Family and Medical Leave Credits, Employee Retention Credit, forgivable Paycheck Protection Program loan proceeds, and other disaster retention credits.
Healthcare Employers That Can Benefit From the WOTC
Now that WOTC is explained let’s discuss how healthcare employers can benefit from this tax credit. Employment in the healthcare field is highly competitive, with many health facilities vying for the same prospects. Selecting from a pool that often gets overlooked may help to fill those positions more quickly. Since there is no limit on hiring WOTC-eligible individuals, the amount of tax credits accumulated can be pretty significant.
Lowering your corporate federal tax liability is another advantage of WOTC. By using it strategically, you may even be able to eliminate your tax liability for many years. Employers can apply for the credit even when there is no tax liability, as unused credits can be carried back one year and carried forward for up to 20 years. Hence, you can save your credits for when there is tax liability.
Reducing your business’ costs means larger profit margins and more money for expansion or new projects. Here are some types of healthcare facilities that benefit from WOTC:
How APS Can Help You Navigate the WOTC Program
WOTC is readily available to qualifying healthcare facilities, yet many do not take advantage of it. Increased candidates and employees mean additional time and paperwork. Managing WOTC can seem overwhelming without a cloud-based solution in place to automate the process. The most effective way to manage this process is to utilize recruiting and onboarding software that integrates with a tax incentive solution.
APS’ employee recruitment and onboarding software for healthcare can automate your medical facility’s hiring process. Recruit candidates, track applicants, and onboard new employees, all in the same solution. During the onboarding process, use our ancillary service provided by Synergi to screen for WOTC-eligible employees automatically. Our software and services for healthcare facilities ensure that you:
- Streamline your recruiting process
- Hire the right people
- Take advantage of maximum federal, state, and local hiring-related tax credits
- Reduce your onboarding time
Contact us today to learn more about how APS can help your healthcare facility automate its payroll and HR processes.