The new Small Business and Work Opportunity Tax Act of 2007 takes its name from a complex but highly valuable tax incentive: the Work Opportunity Tax Credit (WOTC). If you aren't taking advantage of this credit in your business, now may be a good time to start.

Technically, the WOTC is a temporary tax break. It is not a permanent tax incentive. At the end of 2006, after the WOTC had already expired, Congress did three things to revive the credit. It made it retroactive to January 1, 2006, extended it into 2007, and combined it with another credit, the Welfare-to-Work Credit, for 2007.

Just this past May, Congress extended the WOTC even further. Under the Small Business and Work Opportunity Tax Act, the WOTC is available through August 31, 2011. Congress also did something even more important and beneficial to employers. It expanded the credit to cover more employees.

Targeted groups

The WOTC is designed to help individuals who are economically challenged or who live in areas that are economically disadvantaged. They do so by helping businesses to employ them. There are a number of so-called "target groups." Included in these target groups are veterans, high-risk young people, disabled individuals, ex-felons, families receiving food stamps and/or Temporary Assistance to Needy Families (TANF), and others.

The Small Business and Work Opportunity Tax Act expanded the veterans group to include veterans with service-connected disabilities. The new law also expanded the high-risk youth group and changed its name. The new "designated community residents" category has a higher maximum age and extends to residents in certain rural counties.

Amount

Generally, the maximum credit is $2,400 (40 percent of the first $6,000 of qualified first-year wages). The credit is lower if the individual is employed for 400 hours or less. The credit is also lower for summer youth employees. However, it is higher for some veterans.  

The WOTC also requires that employees remain on the job for certain periods. "Qualified wages" generally means wages attributable to service rendered by a member of a targeted group during the one-year period beginning with the day the individual began work for the employer. The new law also allows the WOTC to offset alternative minimum tax liability.

State certification

Your employee must be certified by a state workforce agency as belonging to a targeted group. Most states have a pre-screening process to determine eligibility.

The WOTC is complicated but don't let its complexity dissuade you from taking advantage of this valuable tax break. Our office is ready to help you utilize this credit. We can review the target groups in more detail and calculate your potential tax savings. We can also help you work with your state's workforce agency. Give our office a call today.