The work opportunity tax credit is a federal tax credit available to employers for hiring individuals from certain target populations. The focus target population is individuals who have consistently faced significant barriers to employment. This credit is available for wages paid to certain individuals who begin work on or before December 31, 2025.
Requirements for the Credit:
The amount of tax credit available under the WOTC program depends on the employee’s target group, total hours worked, and total qualified wages paid. Most target groups have maximum credit of $2,400, for an employee who:
is in their first year of employment.
is certified as being a member of an eligible group.
works at least 400 hours of services for that employer.
Hiring certain qualified veterans, for instance, may result in a credit of $9,600 per eligible new hire.
It is important to note that this is a one-time credit for each new hire and an employer cannot claim the credit for employees who are rehired.
Businesses eligible for the credit
Businesses of any size can qualify for work opportunity tax credit when they hire individuals from eligible groups who regularly face major obstacles to employment. Taxable as well as certain tax-exempt employers can claim this credit.
If an employer is taxable, they can claim the credit against income taxes.
If an employer is eligible but tax-exempt, they can claim the credit only against payroll taxes and only for wages paid to members of the qualified veteran targeted group.
The following groups are considered target groups within the WOTC program:
Qualified short-term and long-term IV-A recipients (Temporary Assistance for Needy Families)
Designated community residents (DCR)
Vocational rehabilitation referrals
Summer youth employees
Supplemental Nutrition Assistance Program (SNAP) recipients
Supplemental Security Income (SSI) recipients
Qualified long-term unemployment recipients
How to claim the credit
Filing for the credit is simple. In order to claim the credit, the employer and the job applicant must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with the State Workforce Agency. Form 8850 must be filed within 28 days of the new employee’s start date.
Once an employee is deemed eligible as a member of the 10 targeted groups, the credit is figured on Form 5884, Work Opportunity Credit.
If a business is recognized as tax-exempt, it will need to file Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.