Is the Work Opportunity Tax Credit (WOTC) Worth it for Small Businesses?

Does your business strategy go beyond just making money? Are you looking for ways to contribute positively to society while still improving your bottom line? 

Well, the Work Opportunity Tax Credit (WOTC) could be your answer. This powerful program can reduce your taxes AND help you contribute to a stronger, more inclusive workforce. In this article, I'll show you how.

We'll explore how this often-overlooked tax incentive works, why it deserves your attention, and how it perfectly aligns with the powerful business philosophy called the Triple Bottom Line.

Understanding the Triple Bottom Line Approach

As a business owner, you understand the bottom line, but the Triple Bottom Line greatly expands this concept.

It includes three core principles:

• Profit: The traditional measure of business success
• People: How your business impacts society, employees, and communities
• Planet: Your organization's effect on the environment

Running and operating a business is rewarding and noble. When business leaders look beyond their own pocketbooks and also focus on people and planet, they can make a real difference.

So, let's take a look at how the WOTC helps both people and your profits at the same time.

What is the Work Opportunity Tax Credit?

The WOTC is a federal tax credit designed to reward businesses for hiring individuals from specific target groups who struggle to find employment. This program was created to help both businesses and job seekers who need extra support.

Think of it as the government saying, “We’ll reduce your tax bill if you give these folks a chance.”

Is WOTC Worth the Effort to Your Business?

Yes, especially if you hire often. The paperwork may not seem worth it for just one hire. But if you're making 10, 20, or 100 hires a year, the potential savings are real. 

The tax credits range from $1,200 to $9,600 per qualified employee, depending on which target group they belong to.

Let's look at a concrete example:

A manufacturing company hires 100 employees annually. If just 20 of these hires qualify for the WOTC with an average tax credit of $1,800 each, the company could potentially receive a total tax credit of $36,000. This credit directly reduces the company’s tax liability, effectively improving bottom-line profitability.

That's $36,000 that stays in your business. Even better? You're making a social impact and investing in someone's future. 
 

Who Qualifies for the Work Opportunity Tax Credit?

The WOTC extends its benefits to employees who belong to specific target groups, including:

• Veterans (particularly those with service-connected disabilities)
• Individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits
• Temporary Assistance for Needy Families (TANF) recipients
• Ex-felons
• Individuals with disabilities
• Long-term unemployed individuals

Each of these groups represents people who often face difficulty when seeking employment. By hiring individuals from these groups, the benefit is more than just a tax break. You’re potentially changing someone’s life.

How to Apply for the Work Opportunity Tax Credit

Employers must follow a structured procedure to determine eligibility during the onboarding process:

1. Provide the potential employee with Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit), along with ETA Form 9061 or ETA Form 9062.
2. Have the candidate complete the necessary sections, including details about their background.
3. Submit these completed forms to your state workforce agency (SWA) within 28 days of the employee’s start date.
4. Wait for confirmation of eligibility from the state agency.

If you’re thinking this sounds like a lot of paperwork, time, and energy, you’re right. For a single qualifying hire, the administrative burden might outweigh the $1,800 tax credit. But what if you’re that manufacturing company committed to giving second-chance people jobs? The good news: there’s a way to simplify the process.

How to Simplify the WOTC Process

Integrating this process into your electronic onboarding system can make the process smoother.

At Whirks, we use the isolved platform to streamline the WOTC screening process. With this solution, you can effortlessly include Form 8850 in your digital onboarding process. A potential hire completes this form, then our team takes over and handles the subsequent tax filings for Form 9061 or Form 9062 on your behalf. 

This collaborative approach lets you skip the tax paperwork and focus on hiring the right people.

Not using Whirks or a similar human resources solution? Consult with your existing payroll company to explore the possibility of delegating WOTC filings. This can help you get the most out of this valuable tax credit.

Don’t Forget to Tell Your Accountant About WOTC Hires

Once you’ve partnered with your payroll company to track WOTC, be sure to tell your accountant about it. These tax credits lower your federal and state business income taxes.

So, if you're that manufacturing company and know you’ll receive $36,000 in tax credits annually, you’ve automatically reduced your year-end tax bill by a significant amount!

Letting your accounting team know allows them to factor in your WOTC hires and build these savings into your year-end tax projection or reduce your estimated quarterly payments.

Beyond the Tax Credit: The Social Impact of Second-Chance Hiring

Now that you know how the WOTC works, let's talk about why hiring ex-felons with this tax credit can be especially valuable.

According to the U.S. Chamber workforce data, the United States has the highest incarceration rate in the world. Each year, roughly half a million people are released who could be potential employees.

Ex-felons can find it incredibly difficult to secure employment after serving time. Consider this:

“Formerly incarcerated individuals experience extreme rates of unemployment, hovering around six out of every 10 people being jobless from the time of release to four years after release. Compare this rate to the general population, whose peak unemployment rate during the pandemic reached 15%.” 
Source: The Workforce Impact of Second Chance Hiring, U.S. Chamber of Commerce

The Triple Bottom Line Impact of Hiring Ex-Felons

If we consider the facts for hiring ex-felons, here are some positive outcomes that impact People, Planet, and Profits:

• People & Planet: Ex-offenders who get a job after prison are less likely to re-offend, reducing crime rates.
• People: Many offenders have relevant work experience—more than 11,000 serving prisoners are employed today by over 300 businesses or government departments.
• Profit, People & Planet: 3 out of 4 people would be comfortable buying from a business that employs ex-offenders.

Industries with high turnover rates or those suffering from serious labor shortages (like construction, manufacturing, administrative support, or waste management) might especially benefit from considering this untapped talent pool.

Making a Meaningful Difference While Building Your Business

I’m not so naive to believe that hiring an ex-felon, a veteran, or someone who needs social security income should be hired just because you get a tax credit. 

Hiring people requires a much larger investment than a salary. You want the right people because they are the foundation for all successful operations.

But you should evaluate the Triple Bottom Line and consider that hiring people from these IRS-protected categories could lead to benefits like these:

• Solving your staffing issues
• Providing an opportunity for someone to be successful
• Helping develop productive members of society
• Contributing to generational change for families of second-chance employees
• Achieving your operational goals

Suddenly, considering second-chance workers and tracking for WOTC becomes about more than making money. It feels meaningful. You may just have a significant impact on someone else’s life. And that feels pretty good.

Ready to Make a Difference While Saving on Taxes?

If you're struggling with staffing issues, looking for tax incentives, and want to have an impact in your community, the WOTC might be the solution. 

The WOTC isn’t just a smart move for your profits. It’s a decision that supports people and strengthens your community. That’s the true power of the Triple Bottom Line. And that’s a bottom line we can all feel good about.

At Whirks, we’ve helped businesses across the country implement second-chance hiring strategies and tap into WOTC savings. Let’s talk about how we can help you, too.

If you have more questions about the WOTC, check out our article, 8 Questions Answered About WOTC.

And if you’re in the Memphis area and curious about hiring ex-felons for your business, be sure to check out HopeWorks. It's a local nonprofit helping ex-felons reenter the workforce with professional and career training.