Navigating WOTC Made Easy
Andy Scheu • November 25, 2024

Understanding the Work Opportunity Tax Credit (WOTC) Process

Navigating the hiring process can be quite challenging, especially when you're trying to find the right candidates. One way to make it easier and more rewarding is through the Work Opportunity Tax Credit or WOTC. This federal program offers a financial incentive to employers who hire individuals who might have difficulties getting jobs, like veterans or those who have been out of work for a long time. By providing a tax credit, the WOTC helps open up more job opportunities for those who need them the most.

Below, we'll explore what the WOTC is, who can qualify, and how you can apply. By following the steps outlined here, employers and job seekers alike can take advantage of this valuable program, which encourages a more inclusive workforce and offers financial benefits for participating companies.

What is the WOTC?

The Work Opportunity Tax Credit (WOTC) is a tax benefit offered to employers who hire people from certain groups who often find it harder to get jobs. These groups include veterans, people who receive public assistance, and individuals who have been unemployed for a long time, among others. The main aim of the WOTC is to promote diversity in the workplace and offer chances to those who are in need.

Key Requirements for WOTC Applicants

When applying for the WOTC, there are several key steps and conditions that need to be met. These ensure that employers can claim the tax credit, and individuals can access more job opportunities.

  1. Previous Employment :
    • Applicants need to note if they've worked for the employer before. This helps in understanding past relationships and reasons for rehiring.
  2. Pre-Screening Process :
    • A pre-screening process is necessary. This helps determine if an applicant qualifies for the WOTC by checking if they belong to one of the target groups.
  3. Receiving Benefits :
    • Applicants need to disclose if they have received certain types of public assistance, such as:
      • Food stamps (SNAP benefits)
      • Supplemental Security Income (SSI)
      • Temporary Assistance for Needy Families (TANF)
  4. Employment and Veteran Status :
    • Applicants must indicate if they've been jobless for at least 27 weeks, a significant criterion for re-entering the workforce.
    • Declaring veteran status is also crucial, as the program supports veterans by offering job opportunities post-service.
  5. Referral from Support Programs :
    • Applicants may need to state if they've been referred to an employer by specific workforce programs. This confirms their eligibility and link to state workforce agencies.
  6. IRS Form 8850 :
    • Completing and signing IRS Form 8850 is crucial. Employers must submit this form to the correct state workforce agency to apply officially for the WOTC.

How Does the Process Work?

Once applicants fill out the required information and go through pre-screening, they enter the "WOTC applications area" of the system. Here, the potential credit for each new hire is calculated based on their qualifications. This helps employers gauge the tax benefits they might expect when hiring eligible individuals.

The structured nature of the application highlights the importance of accurate data collection. It not only helps employers make the most of the credits but also supports the creation of useful employment data for policy making.

Why is the WOTC Important?

The significance of the WOTC spans both job seekers and employers:

  • For Job Seekers : The WOTC provides opportunities for those from disadvantaged backgrounds, like the long-term unemployed or those on public assistance, to get into or rejoin the workforce.
  • For Employers : Companies can enjoy tax savings, which strengthen their financial health and support workforce diversity initiatives. By hiring through the WOTC program, businesses play a role in social welfare and community development.

Furthermore, the WOTC emphasizes support for veterans, aiding their transition to civilian life with jobs after military service. Employers who focus on hiring veterans can directly benefit from these incentives.

Interestingly, the program not only addresses employment barriers but also aligns with broader social goals, like reducing government dependency and boosting economic inclusion for underrepresented groups.

Conclusion: Maximizing the WOTC Benefits

Effectively using the WOTC program involves careful attention to detail and cooperation between potential hires and employers. For employers, integrating the WOTC into your hiring strategy can be a win-win situation: diversifying your team while gaining financial perks. For job seekers, understanding your eligibility and being an active part of this process can open doors to new career paths.

Ensure that all necessary documents are completed correctly and submitted timely to fully capitalize on this golden opportunity. By doing so, both employers and job seekers contribute to a more diversity-rich and robust workforce, benefiting everyone in the community.

If you have any questions or need further assistance, consider reaching out to payroll service experts like those at Time & Pay in Johnson City, TN. They specialize in handling WOTC applications and other payroll services, which can be a valuable resource for optimizing the benefits of this program.

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Understanding WOTC: Frequently Asked Questions

Who qualifies as WOTC?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from select target groups facing employment challenges. To qualify, the employee must be part of one of these specific groups and hired for a position that provides wage-earning employment.

What are the target groups for WOTC?

WOTC target groups include veterans, recipients of Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP) recipients, long-term unemployed people, and other specified groups that traditionally have trouble finding jobs. Each group has specific requirements that need to be met to qualify for the tax credit.

What wages qualify for WOTC?

For wages to qualify under the WOTC, they must be paid to employees who fit into one of the eligible target groups. The wages should match the work done, and there are caps on the credit amount, which vary based on the employee's group and hours worked.

Who is eligible for the employment tax credit?

Employers hiring workers from the WOTC's designated target groups can benefit from the employment tax credit. This credit reduces the employer's federal tax liability, provided they submit the necessary paperwork and verify that the employee is part of a qualified group.

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Doll hands hold tiles spelling

Understanding the New “No Tax on Tips” Provision: What Employers of Tipped Workers Need to Know

By Andy Scheu • September 4, 2025
The recently introduced One, Big, Beautiful Bill Act (OBBB Act) brings significant changes for businesses employing tipped workers. A key provision is the “no tax on tips” rule , which removes certain federal tax liabilities for qualified tips. However, not all employees or industries qualify, so it’s essential to understand how this impacts your workforce. To qualify: Tips must be received in an occupation that customarily and regularly received tips on or before December 31, 2024 . Certain fields— healthcare, athletics, and the performing arts —are specifically carved out and do not qualify. Employers must be able to identify if their employees fall into one of the designated Treasury Tipped Occupation Codes (TTOCs) . 📋 Full List of Eligible Tipped Occupations  Below is the complete preliminary list of occupations the Treasury and IRS have identified as customarily tipped roles. Each entry includes the TTOC code, occupation title, description, examples, and related SOC codes . This list is expected to form the basis of official IRS regulations. 🍽️ Beverage & Food Service 101 – Bartenders | Mix and serve drinks (barkeep, sommelier) | SOC 35-3011 102 – Wait Staff | Serve food & beverages to patrons (cocktail waitress) | SOC 35-3031 103 – Food Servers, Nonrestaurant | Serve outside restaurant (room service, beer cart) | SOC 35-3041 104 – Dining Room & Cafeteria Attendants/Bartender Helpers | Clean, reset, assist | SOC 35-9011 105 – Chefs & Cooks | Prepare/cook meals (chef, caterer, food truck cook) | SOC 35-1011, 35-2011, etc. 106 – Food Prep Workers | Prep cold foods, slice meats | SOC 35-1012, 35-2021 107 – Fast Food & Counter Workers | Serve at counters, may prep | SOC 35-3023 108 – Dishwashers | Clean dishes & equipment | SOC 35-9021 109 – Host Staff | Welcome/seat patrons (maître d’) | SOC 35-9031 110 – Bakers | Bake breads, pastries | SOC 51-3011 🎲 Entertainment & Events 201 – Gambling Dealers | Operate games of chance | SOC 39-3011 202 – Gambling Change Persons & Cashiers | Exchange money, tokens | SOC 41-2012 203 – Gambling Cage Workers | Handle casino financials | SOC 43-3041 204 – Gambling & Sports Book Writers/Runners | Take bets, operate keno/bingo | SOC 39-3012 205 – Dancers | Perform dances | SOC 27-2031 206 – Musicians & Singers | Play instruments, sing | SOC 27-2042 207 – DJs (Non-Radio) | Play music for live audiences | SOC 27-2091 208 – Entertainers/Performers | Comedians, magicians, clowns | SOC 27-2099 209 – Digital Content Creators | Streamers, influencers | SOC 27-2099 210 – Ushers/Ticket Takers | Assist patrons at events | SOC 39-3031 211 – Locker/Coatroom Attendants | Provide personal item service | SOC 39-3093 🏨 Hospitality & Guest Services 301 – Baggage Porters/Bellhops | Handle luggage | SOC 39-6011 302 – Concierges | Assist guests with services | SOC 39-6012 303 – Hotel/Resort Desk Clerks | Register, check in/out guests | SOC 43-4081 304 – Maids & Housekeeping Cleaners | Clean hotel rooms | SOC 37-2012 🏡 Home Services 401 – Home Maintenance/Repair Workers | Handyman, roofer, painter | SOC 49-9071 402 – Landscaping/Groundskeeping Workers | Lawn/garden maintenance | SOC 37-3011 403 – Home Electricians | Install/repair wiring | SOC 47-2111 404 – Home Plumbers | Install/repair pipes | SOC 47-2152 405 – HVAC Mechanics/Installers | Heating/AC repair | SOC 49-9021 406 – Appliance Installers/Repairers | Fix/install household appliances | SOC 49-9031 407 – Home Cleaning Workers | House/pool/carpet cleaners | SOC 37-2012 408 – Locksmiths | Keys, locks, safes | SOC 49-9094 409 – Roadside Assistance Workers | Tow truck, tire repair | SOC 49-3023, 53-3032 👤 Personal Services 501 – Personal Care & Service Workers | Aides, butlers, companions | SOC 31-1122 502 – Private Event Planners | Wedding/party planning | SOC 13-1121 503 – Private Event/Portrait Photographers | Wedding/headshot photography | SOC 27-4021 504 – Private Event Videographers | Record events | SOC 27-4031 505 – Event Officiants | Weddings/funerals officiants | SOC 21-2010 506 – Pet Caretakers | Groomers, walkers, sitters | SOC 39-2021 507 – Tutors | Academic tutoring | SOC 25-3041 508 – Nannies/Babysitters | Child care | SOC 39-9011 💇 Personal Appearance & Wellness 601 – Skincare Specialists | Facials, esthetics | SOC 39-5094 602 – Massage Therapists | Therapeutic massage | SOC 31-9011 603 – Barbers/Hairdressers/Cosmetologists | Hair & barber services | SOC 39-5011 604 – Shampooers | Shampoo/rinse hair | SOC 39-5093 605 – Manicurists/Pedicurists | Nail care | SOC 39-5092 606 – Eyebrow Technicians | Threading, waxing | SOC 39-5091 607 – Makeup Artists | Design/apply looks | SOC 39-9031 608 – Fitness Trainers/Instructors | Personal/group exercise | SOC 27-1019 609 – Tattoo Artists & Piercers | Tattoos, body piercing | SOC 51-6052 610 – Tailors | Garment fitting, repair | SOC 51-6041 611 – Shoe/Leather Workers & Repairers | Cobbler, shoe shiner | SOC 39-5012 🎓 Recreation & Instruction 701 – Golf Caddies | Assist golfers | SOC 39-3091 702 – Self-Enrichment Teachers | Piano, art, knitting instructors | SOC 25-3021 703 – Recreational/Tour Pilots | Helicopter/balloon tours | SOC 25-3021 704 – Tour Guides/Escorts | Sightseeing/museum guides | SOC 39-7011 705 – Travel Guides | Expeditions, cruises | SOC 39-7012 706 – Sports & Recreation Instructors | Ski, dive, surf instructors | SOC 53-2012 🚗 Transportation & Delivery 801 – Parking/Valet Attendants | Park/tend vehicles | SOC 53-6021 802 – Taxi/Rideshare Drivers & Chauffeurs | Transport passengers | SOC 53-3054 803 – Shuttle Drivers | Scheduled route drivers | SOC 53-3053 804 – Goods Delivery People | Deliver goods/packages | SOC 53-3031 805 – Vehicle & Equipment Cleaners | Car wash/detailers | SOC 53-7061 806 – Private/Charter Bus Drivers | Motor coach/tour bus | SOC 53-3052 807 – Water Taxi/Charter Boat Workers | Operate boats | SOC 53-5022 808 – Rickshaw/Pedicab/Carriage Drivers | Bike taxis, horse carriages | SOC 53-6099 809 – Home Movers | Furniture movers | SOC 53-7062 ✅ What Employers Should Do Now Review Employee Roles – Determine if any fall under the TTOC list. Adjust Payroll Processes – Coordinate with your payroll provider to ensure compliance with new tip tax rules. Stay Updated – Treasury/IRS will finalize regulations soon, and some occupations may be clarified or excluded. Educate Managers & Staff – Make sure supervisors understand how tips are treated under the new law. 🔗 Resources Official Treasury & IRS Guidance (forthcoming)

Payroll on the Rocks? Why Restaurants Need to Rethink How They Handle Tipped Wages in 2025

By Andy Scheu • August 6, 2025
A wage and tax statement for 2025 is shown on a white background.

New Tax Breaks on Overtime and Tips: What Employers and Employees Need to Know

By Andy Scheu • July 29, 2025
New Tax Breaks on Overtime and Tips: What Employers and Employees Need to Know A major shift in tax policy is here, and it could mean more money in the pockets of millions of American workers — especially those who rely on tips or regularly work overtime. As part of the One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, Congress introduced two key tax deductions: one for qualified tip income and another for overtime premium pay. These changes are designed to reward hard-working Americans and reduce the income tax burden on lower- and middle-income earners. But what does this mean in practice? Let’s break it down. No Tax on Tips: A Win for Service Industry Workers Under the new law, workers in tipped professions — such as servers, bartenders, hotel staff, and others — can now deduct up to $25,000 in tips from their federal taxable income each year. This deduction is retroactive to January 1, 2025 , and is set to remain in effect through the end of 2028. To qualify: The tips must be customary and reported to the employer . The worker must be in a recognized “tipping occupation,” such as those listed in prior IRS guidance. The deduction begins to phase out for individuals earning more than $150,000 (or $300,000 for joint filers). This means a server who reports $15,000 in tips could potentially deduct the full amount from their income when calculating their taxes — reducing taxable income and potentially saving hundreds or even thousands of dollars in federal taxes. This deduction does not apply to Social Security and Medicare taxes. Those payroll taxes are still assessed on total wages, including tips. No Tax on Overtime: Relief for Non-Exempt Employees The law also introduces a deduction of up to $12,500 per individual (or $25,000 for joint filers) for overtime premium pay. This refers specifically to the “time-and-a-half” portion paid for hours worked beyond 40 in a week under the Fair Labor Standards Act (FLSA). It’s important to understand what qualifies: Only non-exempt employees (those entitled to overtime under the FLSA) can claim this deduction. The deduction applies only to the premium portion — that is, the extra 50% above regular hourly pay. High-income earners will see a phase-out starting at $150,000 (individuals) or $300,000 (joint filers). For example, if an hourly worker earned $20/hour and worked 10 hours of overtime in a week, the overtime premium ($10/hour × 10 hours = $100) would be eligible for the deduction — not the full $300 in overtime pay. If that worker consistently earned similar overtime throughout the year, they could reach or exceed the maximum deduction and realize significant federal tax savings . What This Means for Employers Although the new deductions apply to individual tax returns, employers will play a critical role in ensuring that both workers and the IRS have accurate records. Here are the key responsibilities employers now face: Payroll Reporting Enhancements Employers must update their payroll systems to separately track qualified tips and overtime premium pay . These amounts must now be clearly designated on year-end tax forms like the Form W-2 . Form and Recordkeeping Requirements Employers will need to include additional information on employee tax forms, including: A breakdown of earnings by type (regular, overtime premium, tips). Occupation codes that identify whether the employee is in a tipping role. System and Software Updates Payroll vendors and in-house systems must be adjusted to reflect the new codes. For 2025, a “reasonable method” grace period applies, but in future years, precision will be required. Classification Reviews Employers may need to re-evaluate FLSA classifications to ensure that workers are properly labeled as exempt or non-exempt. Improper classification could result in missed deductions or even penalties. Communication and Training HR and payroll teams should be trained on the new rules, and employers should proactively communicate with employees about the potential benefits and what information will be required at tax time. How Employees Benefit — and What They Need to Do These changes are being praised as a way to put more money into the hands of frontline workers, but the deductions don’t apply automatically. Employees need to take certain steps to ensure they receive the tax benefits they’re entitled to. Maintain Accurate Records Employees should keep good records of their reported tips and overtime hours . While much of this will be available on their W-2, they should verify it for accuracy. Understand Eligibility Limits High earners may not qualify, and the deductions only apply to properly classified pay. Employees paid “overtime” who are exempt under the FLSA may find their pay doesn’t count. Prepare for Tax Filing These deductions will likely appear as line items on Form 1040 or a new IRS schedule. Employees should consult a tax preparer or financial advisor, especially during the first year of implementation. Track Annual Caps Workers should be aware of the annual deduction limits and ensure they do not over-report. Overstating deductions could trigger audits or penalties. What This Means in Dollars According to preliminary estimates from tax experts: A tipped worker who earns $20,000 in tips could save between $1,800–$2,200 in federal income taxes, depending on their tax bracket. An hourly worker earning $8,000 in qualified overtime premium pay might reduce their federal taxes by around $800–$1,200 . For households that include both tipped and overtime-earning workers, the combined benefit could reach $4,000–$5,000 annually — a significant reduction in their federal tax liability. Final Thoughts This new legislation signals a clear shift in tax policy — one that rewards work done during evenings, weekends, and holidays, and recognizes the financial challenges of service industry workers. For businesses, it means adjusting payroll systems, refining classifications, and improving documentation . For employees, it means paying attention to how their income is reported and taking full advantage of available tax savings . Time & Pay is here to help employers navigate this transition. Our systems can be tailored to properly track and report eligible tip and overtime income, ensuring compliance and helping your employees take advantage of these new deductions. If you’re unsure whether your payroll processes are ready, now is the time to evaluate and prepare. Need help tracking qualified wages and ensuring accurate reporting? Contact Time & Pay today — we’ll help you get compliant and keep your employees informed.