In the context of the Work Opportunity Tax Credit (WOTC), a “Targeted Group” refers to specific categories of individuals that the Internal Revenue Service (IRS) has identified for employers to target when hiring. The WOTC is a federal tax credit available to employers for hiring individuals from certain groups who face significant barriers to employment.
Historical Context
The WOTC program was established in 1996 and has been periodically extended by Congress. It was designed to incentivize employers to hire individuals from groups that have historically encountered obstacles to entering the workforce. Over the years, the scope of targeted groups has expanded to include a wide range of individuals from diverse backgrounds.
Types/Categories of Targeted Groups
The IRS has defined several categories under the WOTC, including but not limited to:
1. Qualified IV-A Recipient
Individuals who are members of a family receiving assistance under a state plan approved under Part A of Title IV of the Social Security Act (Temporary Assistance for Needy Families).
2. Qualified Veteran
Includes veterans who are:
- A member of a family receiving Supplemental Nutrition Assistance Program (SNAP) benefits.
- Unemployed for a specified period.
- Entitled to compensation for a service-connected disability.
3. Ex-Felon
An individual who has been convicted of a felony and who is hired within a year of the conviction or release from prison.
4. Designated Community Resident
A person aged 18 to 39 who resides within a designated Empowerment Zone, Renewal Community, or Rural Renewal County.
5. Vocational Rehabilitation Referral
Someone who has a physical or mental disability and has been referred to the employer while receiving or after completing rehabilitation services under an Individualized Written Plan (IWP).
6. Summer Youth Employee
Young individuals aged 16 to 17 hired for summer work, residing in an Empowerment Zone, Renewal Community, or Rural Renewal County.
7. Supplemental Nutrition Assistance Program (SNAP) Recipient
Individuals aged 18 to 39 who are members of a family receiving SNAP benefits.
8. Supplemental Security Income (SSI) Recipient
Individuals receiving SSI benefits under Title XVI of the Social Security Act.
9. Long-Term Family Assistance Recipient
A member of a family that has received assistance under a state plan approved under Part A of Title IV of the Social Security Act for a specified period.
10. Qualified Long-Term Unemployment Recipient
Individuals unemployed for at least 27 consecutive weeks, including a period in which they received unemployment compensation.
Key Events
- 1996: Introduction of the Work Opportunity Tax Credit (WOTC) by the federal government.
- 2006: Expansion to include additional groups under the Tax Relief and Health Care Act.
- 2015: Permanent extension of the WOTC in the Protecting Americans from Tax Hikes (PATH) Act.
- 2020: Adjustments made in response to the COVID-19 pandemic to support affected populations.
Detailed Explanations
The WOTC functions by providing tax credits to employers who hire individuals from these targeted groups. The credit amount can vary based on the category and the individual’s employment duration, with maximum credits ranging from $1,200 to $9,600 per employee.
Mathematical Formulas/Models
For example, to calculate the tax credit for hiring a qualified veteran:
For specific cases like a veteran with a service-connected disability:
Charts and Diagrams
Here is a Mermaid diagram illustrating the various Targeted Groups under the WOTC:
graph TD
A[Targeted Group] --> B[Qualified IV-A Recipient]
A --> C[Qualified Veteran]
A --> D[Ex-Felon]
A --> E[Designated Community Resident]
A --> F[Vocational Rehabilitation Referral]
A --> G[Summer Youth Employee]
A --> H[SNAP Recipient]
A --> I[SSI Recipient]
A --> J[Long-Term Family Assistance Recipient]
A --> K[Qualified Long-Term Unemployment Recipient]
Importance and Applicability
Understanding the concept of Targeted Groups is crucial for employers aiming to maximize their tax credits while contributing to social equity by providing employment opportunities to underserved populations. It encourages inclusive hiring practices and supports economic growth by integrating diverse groups into the workforce.
Examples
Example 1: Hiring a Qualified Veteran
An employer hires a veteran who is entitled to compensation for a service-connected disability. The employer is eligible for a tax credit of up to $9,600.
Example 2: Hiring an Ex-Felon
An employer hires an individual within a year of their release from prison, making them eligible for a tax credit of up to $2,400.
Considerations
- Employers must obtain certification that the new hire belongs to one of the targeted groups before claiming the WOTC.
- They should file IRS Form 8850 and ETA Form 9061 or 9062 within 28 days of the employee’s start date.
Related Terms with Definitions
- WOTC (Work Opportunity Tax Credit): A federal tax credit available to employers for hiring individuals from certain groups with barriers to employment.
- IRS (Internal Revenue Service): The U.S. government agency responsible for tax collection and enforcement.
Comparisons
WOTC vs. Other Tax Credits
While the WOTC focuses on employing individuals from targeted groups, other tax credits, like the Earned Income Tax Credit (EITC), aim to benefit low to moderate-income individuals directly.
Interesting Facts
- The WOTC can be particularly beneficial to small businesses, offering substantial tax savings while supporting community employment.
- Over $1 billion in tax credits are claimed annually under the WOTC program.
Inspirational Stories
Success Story: Veteran Reentry
A small business owner hired a veteran facing difficulty in transitioning back to civilian life. With the support from WOTC and tailored employment programs, the veteran became a key employee, contributing significantly to the business’s success.
Famous Quotes
“By providing targeted employment opportunities, we not only uplift individuals but invigorate our economy as a whole.” - Anonymous
Proverbs and Clichés
- “A hand up, not a handout.”
- “Give a person a job, they contribute to society.”
Expressions, Jargon, and Slang
- Tax Credit Windfall: Significant financial gain from tax credits.
- Empowerment Zone: Areas designated to receive tax incentives and other assistance to encourage economic development.
FAQs
Q: How does an employer prove an employee is from a targeted group?
Q: What is the maximum tax credit available under the WOTC?
Q: Can non-profits benefit from the WOTC?
References
Summary
The “Targeted Group” concept under the WOTC is pivotal in fostering inclusive employment and promoting economic growth by incentivizing the hiring of individuals who face barriers to employment. By understanding the eligibility and application process, employers can make significant contributions to societal equity while benefiting from substantial tax credits.
