The search for skilled workers in the manufacturing industry continues. According to the US Bureau of Labor Statistics, over 600,000 manufacturing-related jobs were available in December 2023. The Manufacturing Institute, an independent industry group, recently forecast that approximately 4 million manufacturing jobs will be needed by 2030, with just about half of that need expected to be met.
Where should manufacturers look to fill open positions? One strategy is to broaden your search parameters beyond the prospects you usually consider. If you hire employees from specified “targeted groups,” you may also be eligible for the Work Opportunity Tax Credit (WOTC). This often-overlooked federal tax benefit can result in significant tax savings.
Which Workers Are Eligible for the WOTC?
You can only claim the WOTC for a particular worker if certain criteria are met. It’s important to note that the employee must be a member of one of the disadvantaged groups listed in the tax code, which include the following:
- Qualified veterans (including certain unemployed and disabled veterans)
- Recipients of Temporary Assistance for Needy Families (TANF)
- Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits
- Designated community residents living in empowerment zones or rural renewal counties
- Qualified vocational rehabilitation-referred individuals
- Qualified ex-felons
- Recipients of Supplemental Security Income (SSI)
- Long-term unemployed individuals, designated by a local agency as an individual enduring a period of unemployment for at least 27 consecutive weeks during which they received state or federal unemployment wages.
Even if they belong to a targeted group, some people may still be excluded from the WOTC. This includes rehired employees, relatives of the company’s owner, and employees who hold a majority ownership interest of the company.
The WOTC is available to any worker who otherwise qualifies as a member of a designated group and is appropriately certified. There is no limit to the number of workers who are eligible for the credit each year.
It is worth noting that the WOTC has expired and then been restored multiple times by Congress. Generally, these extensions lasted only a year or two, but the most recent reinstatement is for five years. Currently, the WOTC is set to expire after 2025.
What Is the Credit Worth?
For most targeted groups, the credit is worth up to $2,400 per hire (40% of up to $6,000 in qualified first-year wages). To qualify for the full credit, an employee must work at least 400 hours each year. If an employee works less than 400 hours but at least 120 hours in the year, the credit is lowered to 25% of the first $6,000 in wages, up to a maximum of $1,500.
The WOTC can result in a significant tax benefit. For example, if a business recruits ten targeted group workers in 2024 and each works more than 400 hours per year, the credit could be worth up to $24,000.
In other circumstances, the credit may be considerably higher. For example, it can be as much as $9,600 when hiring certain disabled veterans. If a manufacturer hires 10 employees who qualify, the tax savings could total $96,000.
If you anticipate having additional workers during the summer months, there is a special variation of the WOTC. If you hire a 16 or 17 year-old who lives in an empowerment zone, enterprise community, or renewal community, you can claim a credit equal to 25% of the employee’s first $3,000 in wages, up to a maximum of $750. If the youth works 400 hours or more, the credit increases to 40% of their first-year wages of up to $3,000 of wages, with a maximum credit of $1,200 per worker. Important: Only earnings received for services performed between May 1 and September 15 are eligible for this summertime credit. You also cannot claim credit for individuals you employed last summer.
How Do Manufacturers Claim the Credit?
Before claiming the WOTC for an eligible worker, you must identify the individual and verify eligibility by completing the steps below within 28 days of hire:
- Complete IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,”
- Complete Department of Labor (DOL) Forms ETA 9061 and ETA 9062 (including an additional Self-Attestation ETA Form 9175, if required), and
- Submit the forms to the appropriate State Workforce Agency (SWA)
Assuming that your state’s SWA approves the worker, the WOTC is claimed as part of the general business credit. Track the qualifying worker’s wages throughout the year to calculate the credit amount.
We Can Help
There is little doubt that manufacturers need workers. They should also take advantage of any available tax benefits. The WOTC can assist manufacturers with both. Contact us if you have any questions about the WOTC.
© 2024
