No federal program gives companies tax breaks for hiring minorities as such. Race and ethnicity have never triggered a federal hiring credit. The closest thing is the Work Opportunity Tax Credit under Internal Revenue Code Section 51, which rewarded employers for hiring workers from ten economically disadvantaged groups whose demographics often overlap with minority populations. That credit expired on December 31, 2025, though Congress has renewed it several times before and could do so again.1Internal Revenue Service. The Work Opportunity Tax Credit Is Available Until the End of 2025 A related, geography-based incentive, the Empowerment Zone Employment Credit, also lapsed at the end of 2025.2Internal Revenue Service. About Form 8844, Empowerment Zone Employment Credit
Why No Credit Rewards Hiring by Race
Federal hiring incentives are built around economic hardship, military service, or participation in public assistance programs. Not identity. An employer cannot claim any federal credit simply because a new hire is Black, Hispanic, Asian, Native American, or a member of any other racial or ethnic group. What the tax code does is reward hiring people who face documented barriers to work, and those barriers fall more heavily on some minority communities because of disparities in poverty, incarceration, and long-term unemployment. The practical effect can align with diversity goals, but the legal trigger is always economic status, not race.
The Ten Groups the WOTC Covered
The Work Opportunity Tax Credit gave employers a dollar-for-dollar reduction in federal income tax for hiring someone certified as belonging to one of ten targeted groups:3Internal Revenue Service. Work Opportunity Tax Credit
- Qualified TANF recipients who received Temporary Assistance for Needy Families for at least 18 months, or who stopped receiving it within the past two years.
- Qualified veterans, including those receiving SNAP, those entitled to disability compensation, and those facing extended unemployment.
- Qualified ex-felons hired within one year of conviction or release from prison.
- Designated community residents aged 18 to 39 whose home was in an Empowerment Zone or Rural Renewal County.
- Vocational rehabilitation referrals from a state agency or the Department of Veterans Affairs.
- Qualified summer youth employees aged 16 or 17 living in an Empowerment Zone, working between May 1 and September 15.
- Qualified SNAP recipients aged 18 to 39 who received food assistance during the six months before hiring.
- Qualified SSI recipients who received Supplemental Security Income during any month within the 60 days before the hiring date.4Office of the Law Revision Counsel. 26 U.S. Code 51 – Amount of Credit
- Long-term family assistance recipients who received TANF for at least 18 consecutive months.
- Qualified long-term unemployment recipients who were unemployed for at least 27 consecutive weeks and collected unemployment benefits during that period.
Certification was handled by the state workforce agency, not the employer. A company could believe in good faith that a hire qualified, but without the state’s certification letter, no credit could be claimed.
How Much the Credit Was Worth
For most targeted groups, the credit equaled 40 percent of the first $6,000 in first-year wages when the employee worked at least 400 hours, giving a maximum of $2,400 per hire. Employees who worked between 120 and 399 hours generated a smaller credit of 25 percent, capped at $1,500.5Office of the Law Revision Counsel. 26 USC 51 Amount of Credit
Veterans were the exception. Depending on the veteran’s circumstances, the credit ranged higher:
- Veteran receiving SNAP, or unemployed at least four weeks but less than six months: up to $2,400.
- Disabled veteran hired within one year of discharge: up to $4,800.
- Veteran unemployed six months or more, no disability: up to $5,600.
- Disabled veteran unemployed six months or more: up to $9,600.
Long-term family assistance recipients were the only group that generated a second-year credit. Employers could claim an additional 50 percent of up to $10,000 in second-year wages, for a possible two-year total of $9,000 per employee.6Office of the Law Revision Counsel. 26 USC 51 Amount of Credit
Because the credit reduced tax liability directly rather than reducing taxable income, a $2,400 credit saved $2,400 regardless of the employer’s bracket. Federal law did require the employer to reduce its wage deduction by the amount of the credit claimed, so the net benefit was a little smaller than the headline number, but still substantially better than a deduction of the same size.7Office of the Law Revision Counsel. 26 U.S. Code 280C – Certain Expenses for Which Credits Are Allowable
The Empowerment Zone Credit
Under Internal Revenue Code Section 1396, a separate credit rewarded businesses operating inside federally designated Empowerment Zones that hired residents of those zones. The employee had to both live and work substantially within the zone.8Office of the Law Revision Counsel. 26 U.S.C. 1396 Empowerment Zone Employment Credit
The credit was 20 percent of the first $15,000 in wages per qualifying employee each year, for a maximum of $3,000 annually. Unlike the WOTC, it applied every year the employee kept living and working in the zone, not only in the first year. Empowerment Zone designations were extended through December 31, 2025 under Revenue Procedure 2021-18 and have since lapsed. Wages paid during 2025 can still be claimed on 2025 returns, but no new qualifying wages accrue unless Congress renews the program.
Filing Deadlines That Made or Broke a Claim
The paperwork started before the employee’s first day. Employers used IRS Form 8850, the Pre-Screening Notice and Certification Request, to identify a job applicant as potentially in a targeted group. The employer’s portion had to be completed no later than the day the job offer was made.9Internal Revenue Service. Instructions for Form 8850 (Rev. March 2021) Missing that deadline eliminated the credit for that hire, no matter how clearly the person qualified.
Alongside Form 8850, the employer or the state workforce agency completed ETA Form 9061, the Individual Characteristics Form, which collected the evidence of targeted group membership.10U.S. Department of Labor. ETA Form 9061 – Individual Characteristics Form When the state agency was the one certifying the worker, ETA Form 9062 replaced Form 9061.
After the employee started, the employer had 28 calendar days to submit Form 8850 to the State Workforce Agency. This deadline is where most WOTC claims died. Employers who waited until tax season to think about the credit had already lost it. Once the state verified eligibility and issued a certification letter, the employer calculated the credit on Form 5884 and carried the total to Form 3800, the general business credit form.11Internal Revenue Service. About Form 5884, Work Opportunity Credit12Internal Revenue Service. About Form 3800, General Business Credit
Credits From Past Years Can Still Help
Companies that earned more credit than they could use in a single year did not lose the surplus. Unused WOTC and Empowerment Zone credits could be carried back one year and forward up to 20 years as part of the general business credit.13Office of the Law Revision Counsel. 26 U.S. Code 39 – Carryback and Carryforward of Unused Credits A company that hired qualifying workers during 2025, or in any earlier open year, may still have credit to apply against current or future tax bills.
Records need to be kept as long as any related return remains open. That generally means holding Form 8850, Form 9061 or 9062, the state certification letter, and supporting documents for at least three years from the date you filed the return, or two years from the date you paid the tax, whichever is later.14Internal Revenue Service. How Long Should I Keep Records Multi-year carryforwards extend that clock: hold the original documentation as long as any return that uses it stays open.
State and Local Hiring Credits
Many states and cities run hiring credit programs that complement or mirror the federal WOTC. Some piggyback on the federal certification, letting employers claim a state credit for any worker who already qualifies federally, with no separate paperwork. Others target local priorities, such as hiring residents of designated neighborhoods, graduates of vocational training programs, or people transitioning out of homelessness.
State credit amounts, eligibility rules, and application procedures vary too much for a single summary. The point for employers is that a federal expiration does not necessarily kill a state benefit. Some states maintain their own hiring incentives independent of federal law, and those programs sometimes fill gaps left when a federal credit lapses. Check with the state’s economic development agency or department of revenue to see what is currently on offer.