As anyone who has helped build or recruit staff for a nonprofit knows, it’s critical that you seek out and utilize every advantage that you can when identifying potential sources for talented team members. Because many nonprofits have to compete with the for-profit and public sectors to recruit, they sometimes struggle to attract the same breadth and depth of interest from job seekers, particularly those who hold remuneration as the most important factor when considering a new role. Thankfully, many nonprofits have been extraordinarily successful at working around this limitation, either by offering unique benefits to recruits or taking advantage of government programs that can help make up the deficit between their resources and those of the private sector.
The Work Opportunity Tax Credit (WOTC) is one such program, allowing employers to offset their taxes by employing team members who belong to one or several specific groups. Utilizing this program can help your nonprofit avoid or eliminate the pernicious cycle of recruitment and retention challenges, all while helping you identify and recruit from a wider range of qualified and motivated applicants. However, it is worth noting that taking advantage will require some amount of compliance legwork and tracking, as any WOTC-qualified employees will need to be certified by the relevant government departments. Here’s how the WOTC works for nonprofits and how you can take advantage:
What is the Work Opportunity Tax Credit?
The WOTC is a federal program created in 1996 to help allay the costs borne by small businesses and nonprofits while incentivizing the hiring of what are called “targeted groups”. Simply put any organization that hires members of these groups can apply for the program and, if approved, be granted relief on their federal taxes. While the program has changed significantly over the years and has been expanded to include particular groups, such as veterans of the United States military, it will remain active until at least 2025. Last year, the WOTC was certified almost two million times. It is available to both private sector and nonprofit employers, with some notable differences between the process for each.
What are the WOTC rules for nonprofits?
While for-profit organizations can apply when hiring from a wide range of groups, including recipients of state assistance and ex-felons, 501(c) certified organizations are much more limited, and can only apply when hiring what is defined as a “qualified veteran”. It is important to note that this is a specific subset of veterans and that not all veterans qualify. Qualified veterans are defined by the following characteristics, which they must have at least one of:
- Recipients of or part of a family that receives Supplemental Nutrition Assistance Program (SNAP) benefits.
- Unemployed for at least a month, or unemployed for at least six months of the prior 12-month period (underemployed).
- Have a service-connected disability and are hired within one year of being discharged from the military or be underemployed as defined above.
How does the WOTC work for nonprofits?
As a tax-based program, the WOTC requires adherence to a specific set of rules. If your nonprofit organization is interested in exploring the possibility of using the WOTC, you should ensure that your HR and compliance teams are well-versed in the requirements. Unlike for-profit organizations, nonprofits receive WOTC tax relief from their payroll taxes. If you are looking to hire a qualified veteran, here is the process you need to go through to receive WOTC benefits:
- Apply for the WOTC using IRS Form 8850, which must be completed before making any job offer to the individual in question
- Complete and send in ETA Form 9061, which provides the Department of Labor (DOL) with the individual information they need to certify that your prospective new hire is a qualified veteran
- Once these are complete, you need to send them to your relevant state workforce agency. This step must be completed within a month (28 days) of the employee’s start date
- The certification process can take up to a year, depending on the state, and accounting for any issues with the application process that you must correct
- Once the employee is certified, you can then fill out and send in IRS Form 5884-C: Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, which allows you to use the credit against their contribution to Social Security
Other key considerations
As with any tax credit program, it is essential that you ensure that your HR team is prepared to comply with any extra requests for information or internal documentation. You may be asked to provide information on the individual’s role and responsibilities, hours worked, wages, and other employment information in order to qualify. Because of the significant amount of time it typically takes to certify someone for WOTC, many organizations fail to account for these added compliance steps and are forced to scramble when the IRS or DOL requests clarification or more information. However, the longevity of this program and the legislative efforts made to make it permanent speak to its utility and success as a program.
Whether or not your nonprofit has issues with hiring or retention, you could benefit from building a relationship with veteran’s organizations, not just to utilize the WOTC but to recruit from an often-overlooked segment of highly driven, skilled employees. The WOTC is one of the keyways that you can benefit from hiring qualified veterans, and it also helps you build a recruiting pipeline from a group of job seekers who might not otherwise know about your organization or work. The significant benefits of ‘tapping in’ to new areas of potential employees paired with the ability to free up more finances to further your nonprofit’s goals could make this process worth exploring.
ABOUT US
For more than 40 years, 501(c) Services has been a leader in offering solutions for unemployment costs, claims management, and HR support to nonprofit organizations. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy and are committed to providing our clients with customized plans that fit their needs.
Contact us today to see if your organization could benefit from our services.
Are you already working with us and need assistance with an HR or unemployment issue? Contact us here.
The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
(Image Credit: Canva.com)
