The Work Opportunity Tax Credit (WOTC) for wineries

We were recently asked a question about the Work Opportunity Tax Credit (WOTC) and thought it was a good write-up to share with everyone. 

If you didn’t know, the Work Opportunity Tax Credit (WOTC) is a great, lesser-known tax credit that’s available to every small business, including wineries, on the condition that you employ eligible workers. 

Here are the details. 

What is the Work Opportunity Tax Credit (WOTC)?

The Work Opportunity Tax Credit (WOTC) is a government program that gives business owners a tax credit for hiring employees from certain target groups who have faced significant barriers to employment. 

This credit is designed to encourage employers to hire individuals from these groups, who may have difficulty finding employment, by providing a financial incentive in the form of a tax credit.

To qualify for the credit, the employee you hire must be a member of a target group, such as veterans, individuals receiving food stamps, or those receiving certain forms of public assistance. 

The credit amount varies depending on the target group, the length of the employee’s work, and the amount of wages paid to the employee. 

How do you qualify for the tax credit? 

As with most tax credits, there are a variety of requirements you must meet to qualify. In this case, the most relevant eligibility category may be "individuals receiving public assistance." 

We’ve outlined the requirements for this below, but you can find more comprehensive information here. 

To qualify as an individual receiving public assistance, the new hire must meet one of the following criteria at the time of hire:

1. Must be an individual or a qualifying family member who received Temporary Assistance to Needy Families (TANF) cash benefits for at least nine months of the last 18 months.

2. Must be an individual or a qualifying family member who received long-term TANF: For the previous 18 consecutive months; or Received TANF for any 18-month period starting after Aug. 5, 1997, and ending within two years of the applicant's hire date; or

3. Must be an individual or a qualifying family member, age 18 to 39, who received Supplemental Nutrition Assistance Program (SNAP) benefits (formerly food stamps) for six consecutive months including the hire date.

4. Must have received Supplemental Security Income (SSI) for any month in the 60 days before being hired.

It’s important to note that to claim the credit, you must obtain certification from the designated local agency that the employee is a member of a target group. 

So, if you’re interested in claiming this credit, it’s best to contact the designated local agency in your area for more information on the certification process and the requirements for the credit.

How much money can you receive back from the WOTC? 

The Work Opportunity Tax Credit (WOTC) offers different calculations for the tax credit amount based on factors like the employee's work hours and veteran status. 

Generally, 

• For eligible employees in their first year of work who perform at least 400 hours, the credit is usually 40% of up to $6,000 of their wages. This means the maximum credit is typically $2,400.

• For qualified veterans, the maximum potential Work Opportunity Tax Credit is higher than $2,400, potentially up to $9,600.

• If the employee works fewer hours but at least 120, the credit rate drops to 25%.

How do you claim the Work Opportunity Tax Credit?

To claim the Work Opportunity Tax Credit (WOTC), employers and job applicants need to fill out Form 8850 before the job offer is made. 

After hiring, employers have 28 days to submit this form to the local agency where the business operates. 

Once the agency confirms the employee's eligibility from one of the 10 targeted groups, you will need to file Form 5884 on your federal income tax return to claim the credit. 

Note: the credit is elective, meaning it won’t be given automatically. 

If the credit amount exceeds the employer’s federal income tax liability for the year, you can carry the unused credit forward to the next year, or even up to 20 years.

Get help with your winery tax credits

If you have more questions about the Work Opportunity Tax Credit (WOTC) or are curious about other winery tax credits you may be eligible for, we’re always here to help. 

Simply get in touch with us over on our Getting Started page. 

In the meantime, you might enjoy our 2024 list of favorite tax deductions for wineries.

Until next time!