United States

4 WOTC issues to consider during an acquisition


The Work Opportunity Tax Credit (WOTC) offers employers a credit for a portion of the first-year wages of employees based on hours worked that were hired from certain target groups. The credit can be substantial, but how do you address WOTC credits when you acquire another company?

When a company acquires substantially all the assets of a target company, consider these four issues:

  1. The target company has either taken advantage of WOTC or it hasn’t. Companies must apply for WOTC within 28 days of hiring new employees, so if the target company has failed to do so, you can’t go back and take the credit. Acquiring a company may make the employees new for you, but it does not qualify them for WOTC.
  2. If the target company is taking advantage of WOTC, the question is how to divide the credit for the tax year in which you make the acquisition. It’s pretty straightforward. The target company keeps the credit for any included wages up until the date of acquisition. The acquiring company takes the credit for all included wages paid thereafter.
  3. If there is WOTC credit available, the form of the transaction does not affect the credit. It is available whether the transaction is an asset or stock acquisition.
  4. Finally, don’t forget to check for state programs modeled on WOTC rules. Many states have them.

The WOTC can be a valuable opportunity for many employers, yet many companies fail to take advantage of this credit, often because they mistakenly believe that it isn’t available to them. For more information, see our recent article 5 myths that keep companies from filing for WOTC

Mark Blawas

Senior Manager

Mark focuses on helping companies secure tax credits and business incentives across the United States. Contact him at mark.blawas@rsmus.com.

Areas of focus: Credits and IncentivesWork Opportunity Tax CreditCapital Investment Incentives