Work Opportunity Tax Credit (WOTC): Form 5884

Is the Work Opportunity Tax Credit (WOTC) worth it for Venture Backed Startups? While this is a great credit, it hasn’t proven to be particularly useful for VC backed startups that we serve. Across the 500+ startups we worked with in 2020, none hired qualified veterans or felons, and exceptionally few hired summer interns that were eligible for the Work Opportunity Tax Credit. We do encourage businesses to hire veterans - at Kruze, we’ve been fortunate enough to have some great employees who have served in our nation’s military. And, we also have some military spouses on our staff as well. Based on our great experience, we encourage startups to hire veterans! 

This is a federal tax credit offered by the IRS that is available to startups who hired employees for underrepresented, targeted groups.  It is designed to promote workplace diversity.

In order to claim the credit, startups must:

1. Apply and receive approval from the state workforce agency (SWA) and
2. Complete, and receive approval for, the Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day you offer the employee the job

Who is a qualifying employee of a targeted group?

While there are many targeted groups prescribed within the WOTC, the three most common are:

• Summer Interns
• Veterans
• Ex-Felons

How much credit will my startup receive? 

• Qualified Summer Interns: max $3000
• Qualified Veterans: max $6,000-$24,000
• Qualified Other Persons: max $6000

You can apply for the Work Opportunity Tax Credit on form 5884 and 3800, which is a part of the 1120 C-Corporation Income Tax Return, due 4/15 every year and can be extended to 10/15 every year.

If you would like more information on the Work Opportunity Tax Credit , you can check out the Form 5884 section on the IRS website here.