Jeff Davis, TEAM Software, CALSAGA Network Partner

Understanding the Work Opportunity Tax Credit and how to apply it to your business could mean significant savings on your labor costs. 

When labor is your top expense, like it is in the contract security industry, anythisng you can do to control those that costs is going to have a positive impact on your bottom line. Even though your labor costs may increase, you can’t just increase prices for your customers when they can easily find another service provider willing to charge less. One way to help offset labor costs is through the Work Opportunity Tax Credit (WOTC) program.

WOTC is a U.S. federal tax credit designed to promote the hiring of individuals from certain groups who have faced significant barriers to employment. When an employer hires a qualifying employee who meets WOTC criteria, they can claim a federal tax credit against the employee’s paid wages. According to the Department of Labor, over two million WOTC certifications were issued in 2019.

While it may sound simple, there is a learning curve to understanding all the complexities of the program. Here is a quick overview to help you get started with WOTC.

Which of Your Hires are Eligible?

The first step to understanding WOTC is having a basic understanding of who’s eligible for the program. Under WOTC guidelines outlined by the IRS, qualified groups include:

  • Qualified veterans
  • Ex-felons
  • Qualified long-term unemployment recipients
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Qualified IV-A recipients
  • Designated Community Residents (DCR)
  • Vocational Rehabilitation Referrals
  • Summer Youth Employees
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients

Specifically looking at qualified veterans, that includes individuals who meet specific unemployment criteria including but not limited to being unemployed for at least four weeks prior to being hired;, being a service-connected disabled veteran; and being a member of a family who receives assistance under the Supplemental Nutrition Assistance Program (SNAP).

Potential Savings to Your Security Company

According to the Employment Development Department of California, depending on the target group eligibility of the person hired, wages and the number of hours worked, WOTC allows businesses to claim tax credits up to $9,600 of qualified wages per eligible employee, which can be deducted from taxable income. WOTC is especially beneficial for security contract companies due to the number of veterans who pursue a career in the security industry after they’re done serving in the military. As of 2020, over 1.5 million veterans live in California alone. WOTC is also particularly helpful for companies with high employee turnover and new hire rates. Because you can file a claim for any eligible new hire who works at least 120 hours, employers that are continually bringing on new employees can use WOTC to help offset onboarding and recruiting costs. 

How Do I Set Up WOTC Filing for My Company? 

In order to claim WOTC for eligible employees, you must file certification request applications with the state workforce agencies within 28 calendar days of the new hire’s start date. You can find specific submission instructions on California’s workforce agency website. Navigating the WOTC process, especially if you’ve never filed before, can seem daunting. It’s important to verify all steps of the process are followed correctly and to partner with companies that can simplify the process if you don’t have the ability to do it in-house. And, if you use a security industry-specific ERP as your one source of record, you already have all the information you need in one place.

TEAM Software is dedicated to ensuring our software solutions meet the ever-changing needs of our customers. We’re also continually working to bring you relevant content to help you manage your business better by taking advantage of programs like WOTC. While we’re committed to keeping you informed, it’s important to do your own research, and consult your own legal and tax advisors when necessary, too. For more information on the WOTC tax credit, visit the United States Department of Labor WOTC page.