Tax Credits

Work Opportunity Tax Credit (WOTC)


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What is the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) is a federal income tax credit that encourages employers to hire eleven targeted groups of job seekers who begin work before December 31, 2013. WOTC can reduce employer federal tax liability by as much as $2,400 per new hire for categories A, B (Veteran Food Stamps and Veteran Short-Term Unemployed), C, D, E, G, and H. Category I, Long Term TANF recipient (formerly Welfare to Work), has a maximum value of $9,000 over a two year period. Category B, Disabled Veteran, has a maximum value of $4,800; $9,600 for Disabled Unemployed Veteran and $6,000 for Long-Term Unemployed Veteran.

WOTC is one tool in a diverse toolbox of flexible strategies designed to help job seekers most in need of employment gain on-the-job experience and move towards economic self-sufficiency. This employer tax incentive joins other employment program and targeted tax credit initiatives aimed at helping American workers and increasing American productivity and economic growth.

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Priority of Service

Priority of Service is given to Veterans and eligible spouses. Veteran, for the sole purpose of Priority of Service, means a person who served at least one day in the active military, naval, or air service, and who was discharged or released under conditions other than dishonorable. Active service includes full-time Federal service in the National Guard or a Reserve component.

WOTC is honored to provide tax credit opportunities to employers who hire men and women who served in the U.S. Armed Services.

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What new hires can qualify employers for WOTC?

WOTC applies to new hires who begin work between January 1, 2006 and August 31, 2011 and that belong to one of nine WOTC target groups:

Category A

 

Welfare Recipients

Any individual who has received financial benefits under the AFDC (Aid to Families with Dependent Children) or the successor program, TANF (Temporary Aid to Needy Families). The employee must have received at least any 9 months of benefits within an 18 month period dating back from their hire date. If the employee has received benefits from another state, identify that state on the form 9061 (Individual Characteristics Form) in block #17 or #21. Medicaid or Medicare are not qualifying IV-A benefits. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category B

Veteran Food Stamps

Veterans who are members of a family that received food stamps for at least three consecutive months during the 15 months prior to date of hire. Documentation such as the Veterans DD 214 or other forms of official documentation is needed to establish proof of service. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

 

Disabled Veterans

A veteran who is certified as entitled to compensation for a service-connected disability of at least 10% and having a hire date which is not more than one year after having been discharged or released from active duty in the Armed Forces of the United States or having been unemployed for six months or more (whether or not consecutive) during the one year period prior to the hire date. A service-connected disability is defined as having a disability rating of 10 percent or higher according to Section 101 of Title 38, U.S.C. Qualified first- year wages for this category are $12,000.

 

Unemployed Veterans (short-term)

A veteran who has been unemployed for at least four consecutive or non-consecutive weeks (but less than six months) during the year ending on the hiring date.  This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

 

Unemployed Veterans (long-term)

A veteran who has been unemployed for at least six consecutive or non-consecutive months during the year ending on the hiring date.  This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 40%. Qualified wages are capped at $14,000.

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Category C

Ex Felons

An individual who has been convicted of a felony and/or has been released from incarceration within the previous 12 months from date of hire. If the individual was sentenced directly to probation, work release, community corrections without being incarcerated, a letter from the case worker, parole officer, or halfway house to document the status is required. Information can be added to form 9061 in block 17 or 19 to assist in obtaining the required documentation to certify the applicant. Date of birth is necessary for this category. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category D

Designated Community Residents-DCR

A DCR is an individual that is certified by the SWA/DLA as having attained the age of 18 but not 40 on the hire date and his /her principal place of abode is within an EZ, RC or Rural Renewal County (RRC). RRCs are defined as any county that is outside a metropolitan statistical area (MSA) defined as such by the OMB and had a net population loss during the five year periods of 1990-1994 and 1995-1999. Colorado has three such counties which are Cheyenne County, Kiowa County and San Juan County. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category E

Vocational Rehabilitation

Any person who is currently receiving rehabilitative services, or has completed services within 2 years of the hire date. These individuals need to have an IWPE (Individualized Written Plan of Employment) to support those services rendered under the Rehabilitation act of 1973 or under Chapter 31 of Title 38, U.S. Code. This now includes work plans that have been developed and implemented through an Employment Network. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category G

Food Stamps

Any individual who is 18 thru 39 years old and is a member of a family that is receiving Food Stamps. The recipient must have received 6 continuous months of benefits under the Food Stamp Act of 1977 dating back from the hire date. In addition, the recipient can qualify by being an able-bodied adult without dependents if they received 3 continuous months of Food Stamps within the previous 5 months dating back from the hire date. If the new hire received benefits in a state other than Colorado, indicate which state in box 17 or 19 on the ETA for 9061, Individual Characteristics Form. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category H

SSI recipients

Individuals who received Supplemental Security Income benefits for any month during the 60 days prior to date of hire. This tax credit for new hires employed 400 or more hours is 40% of qualified wages for the first year of employment; the credit for new hires employed 120 to 399 hours is 25%. Qualified wages are capped at $6,000.

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Category I

Long Term TANF Recipients

Formerly referred to as the Welfare to Work Credit. This tax credit has merged under the WOTC Tax Credit by Bill HR2206. Long Term TANF recipient who is a member of a family that received Temporary Assistance for Needy Families (TANF) for at least 18 consecutive months ending on the hire date, or a member of a family whose TANF eligibility expired under Federal or State law after August 5, 1997 and no more than 2 years before the hire date, or whose family received TANF for any 18 months after August 5, 1997 and the 18th month of benefits ended no more than 2 years before the hire date. The tax credit for category I new hires employed 400 or more hours or 180 days is 40% of qualified wages for the first year of employment and 50% for the second year. Qualified wages are capped at $10,000 per annum; they include tax-exempt amounts received under accident or health plans as well as educational assistance and dependent assistance programs.

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How can employers apply for the WOTC?

Employers must apply for and receive certification from the Colorado Department of Labor & Employment WOTC Unit, verifying that their new hire is a member of a WOTC target group before they can claim the WOTC on their federal tax return.

New E-8850 (Apply Electronically)

The Colorado Department of Labor & Employment is the first state in the nation to offer an electronic submission system for the WOTC program that eliminates the need to mail the required forms.  As a Colorado based employer, you simply need to visit http://wotc.cdle.org and register as a new employer.

Once this is completed, you will have the capability of submitting your forms electronically.  When the Federal employer identification number (Fein) has been verified by our staff, you will also be able to print the decisions made available to you at your convenience. 

This new way of doing WOTC business will also provide a permanent record of all submissions and decisions should you need to refer to them in the future. By using this new system, Colorado employers have received their tax credits far more expeditiously than the traditional process of mailing the forms.  This is especially beneficial when the income tax season comes around annually. 

For assistance or more information, please contact one of our staff members and we will make sure you have a successful experience with this state-of-the-art system.

Mail-In

To apply for WOTC certification, employers need only:

Complete the IRS Form 8850  page 1 and 2, ( instructions for form 8850 ) "Pre-Screening Notice and Certification Request" for the Work Opportunity Tax Credit.
Complete the one-page U.S. Department of Labor ETA  Form 9061  ,"Individual Characteristics Form".  At least one target group must be selected.

Both forms must be included to be considered a complete application. Claims received without all necessary forms and documentation will be administratively denied until all necessary forms or documents are received. The claims will then be processed. Colorado does not accept ETA Form 9062 "Conditional Certifications". All certifications are done by the State WOTC office.  

Mail the signed IRS 8850 and ETA 9061 forms with original signatures within 28 days of the new hire's start date. This proof must include a post mark from the U.S. Postal Service falling not later than the 28th calendar day following the individual's start date.

Mail to:

Colorado Department of Labor & Employment
WOTC Unit
633 17th Street, Suite 700
Denver, CO 80202-3927

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What are the IRS forms and the IRS instructions that employers need for filing Federal Income Tax Returns?

  • The Work Opportunity Credit is calculated on Form 5884. (The instructions are included with the form)
  • You may need to file  Form 3800  also, in order to claim credit. Form 3800 is the "General Business Credit" a type of summary form. Please note that " Instructions for Form 3800  " are separate.
  • You can have the above forms mailed to you by calling 1-800-829-3676.

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Links

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Contact Us

Shirley Dixon,
WOTC Coordinator
Ph: 303-318-8845, Fx 303-318-8934
Em: shirley.dixon@state.co.us

Frances Pineda
Ph: 303-318-8961, Fx 303-318-8934
Em: frances.pineda@state.co.us

James Newby
Business Solutions Manager
Ph: 303-318-8816
Em: james.newby@state.co.us
 

Colorado Department of Labor & Employment, WOTC Unit
633 17th Street, Suite 700, Denver, CO 80202-3927
http://www.colorado.gov/cdle/taxcredits

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