Work Opportunity Tax Credit- Opportunities for Non-Profits

The U.S. 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 recoup some hiring investment by claiming a tax credit if they hire an individual in one of 10 WOTC Targeted Groups.? However, the WOTC Tax Credit comes with stringent filing deadlines and employment tracking requirements.

As anyone who has helped build or recruit staff for a non-profit knows, you must seek out and utilize every advantage when identifying potential sources for talented team members.? Because many non-profits compete with the for-profit and public sectors to recruit, they sometimes struggle to attract the same breadth and depth of interest from job seekers, particularly those with remuneration as the most critical factor when considering a new role.? Thankfully, many non-profits have been extraordinarily successful at working around this limitation, either by offering unique benefits to recruits or taking advantage of government programs that can help make up the deficit between their resources and those of the private sector.

What are the WOTC rules for non-profits?

While for-profit organizations can apply when hiring from a wide range of groups, including recipients of state assistance and ex-felons, 501(c) certified organizations are much more limited and can only apply when hiring what is defined as a “qualified veteran.” It is important to note that this is a specific subset of veterans and that not all veterans qualify.? Qualified veterans are defined by the following characteristics, which they must have at least one of:

• Recipients of or part of a family that receives Supplemental Nutrition Assistance Program (SNAP) benefits.
• Unemployed for at least a month or unemployed for at least six months of the prior 12-month period (underemployed).
• They have a service-connected disability and are hired within one year of being discharged from the military or are underemployed, as defined above.

How does the WOTC work for non-profits?

As a tax-based program, the WOTC requires adherence to a specific set of rules.? If your non-profit organization is interested in using the WOTC, ensure that your HR and compliance teams are well-versed in the requirements.? Unlike for-profit organizations, non-profits receive WOTC tax relief from their payroll taxes.? If you are looking to hire a qualified veteran, here is the process you need to go through to receive WOTC benefits:

1. Apply for the WOTC using IRS Form 8850, which must be completed before making any job offer to the individual in question.
2. Complete and send in ETA Form 9061, which provides the Department of Labor (DOL) with the individual information they need to certify that your prospective new hire is a qualified veteran.
3. Once complete, you must send them to the relevant state workforce agency.? This step must be completed within a month (28 days) of the employee’s start date.
4. The certification process can take up to a year, depending on the state, and accounting for any issues with the application process that you must correct.
5. Once the employee is certified, you can fill out and send in IRS Form 5884-C: Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, allowing you to use the credit against their contribution to Social Security.

Other key considerations

As with any tax credit program, you must ensure that your HR team is prepared to comply with any extra requests for information or internal documentation.? To qualify, you may be asked to provide information on the individual’s role and responsibilities, hours worked, wages, and other employment information.? Many organizations fail to account for these added compliance steps because of the significant time it typically takes to certify someone for WOTC.? They are forced to scramble when the IRS or DOL requests clarification or more information.? However, the longevity of this program and the legislative efforts made to make it permanent speak to its utility and success as a program.

Whether or not your non-profit has issues with hiring or retention, you could benefit from building a relationship with veteran organizations to utilize the WOTC and recruit from an often-overlooked segment of highly driven, skilled employees.? The WOTC is one of the key ways you can benefit from hiring qualified veterans, and it also helps you build a recruiting pipeline from a group of job seekers who might not otherwise know about your organization or work.? The significant benefits of ‘tapping’ into new areas of potential employees and the ability to free up more finances to further your non-profit’s goals could make this process worth exploring.