The federal job creation tax credit most employers mean when they use that phrase is the Work Opportunity Tax Credit, and it expired on December 31, 2025. It no longer applies to anyone who started work in 2026 or later.1Internal Revenue Service. Form 8850 Is No Longer in Use If you hired a qualifying worker before that cutoff and got the paperwork right, you can still claim the credit on your 2025 return, and any unused amount from earlier years still carries forward. For hires made in 2026, the federal program is not currently available, though several states run their own job creation incentives.
Where the Federal Credit Stands Now
Congress has extended the Work Opportunity Tax Credit several times, most recently through the Consolidated Appropriations Act of 2021, which set the December 31, 2025 sunset.2Office of the Law Revision Counsel. 26 USC 51 – Amount of Credit The statute excludes from eligible wages any amount paid to an individual who begins work after that date. In March 2026 the IRS confirmed that Form 8850, the pre-screening form employers used to request certification, is no longer in use.1Internal Revenue Service. Form 8850 Is No Longer in Use
Legislation to renew and expand the credit has been introduced, but no extension has been enacted. Congress has let the WOTC lapse before and then reinstated it retroactively, sometimes long after expiration, so employers who keep hiring from qualifying categories may want to keep the same records they would have kept under the active program.
Which Hires Qualified
The WOTC was never a general hiring incentive. It applied only when a new employee belonged to one of ten specific groups facing barriers to employment:3Office of the Law Revision Counsel. 26 USC 51 – Amount of Credit
- Qualified TANF recipients (family received TANF at least 9 of the prior 18 months)
- Qualified veterans, including those receiving SNAP, with a service-connected disability, or unemployed for extended periods
- Qualified ex-felons hired within one year of conviction or release
- Designated community residents aged 18 to 39 living in an empowerment zone or rural renewal county
- Vocational rehabilitation referrals from a state program, Ticket to Work, or a VA program
- 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
- Qualified SSI recipients who received SSI within 60 days of the hire date
- Long-term family assistance recipients (18 consecutive months of TANF, or lost eligibility due to time limits)
- Qualified long-term unemployment recipients (unemployed at least 27 consecutive weeks and received unemployment compensation during some of that period)
Empowerment zone designations also expired at the end of 2025, which affects the designated community resident and summer youth categories going forward. Hires made while those designations were active remain claimable.4Internal Revenue Service. Instructions for Form 8850
Rehires never counted, even if the returning employee otherwise belonged to a targeted group. Relatives and dependents of the business owner were excluded under the related-party rules, and the worker had to be on your payroll rather than contracted or outsourced.5Internal Revenue Service. Work Opportunity Tax Credit
How Much the Credit Is Worth
The WOTC equals 40 percent of an employee’s qualified first-year wages, up to a cap that varies by targeted group. For most categories the wage cap is $6,000, producing a maximum credit of $2,400.5Internal Revenue Service. Work Opportunity Tax Credit The veteran categories go higher:
- Veteran receiving SNAP for 6+ months or unemployed 4+ weeks: wages up to $6,000 ($2,400 credit)
- Disabled veteran hired within one year of discharge: wages up to $12,000 ($4,800 credit)
- Veteran unemployed 6+ months: wages up to $14,000 ($5,600 credit)
- Disabled veteran unemployed 6+ months: wages up to $24,000 ($9,600 credit)
- Summer youth employees: wages up to $3,000 ($1,200 credit)
Long-term family assistance recipients are the one group where the credit runs into a second year: employers can also claim 50 percent of qualified second-year wages, up to $10,000.2Office of the Law Revision Counsel. 26 USC 51 – Amount of Credit
The Hour Thresholds
The 40 percent rate applies only when the employee works at least 400 hours in the first year. Between 120 and 400 hours, the rate drops to 25 percent of qualified wages. Under 120 hours, no credit is available.5Internal Revenue Service. Work Opportunity Tax Credit A worker who leaves at 115 hours generates nothing, no matter how clean the paperwork is.
Claiming the Credit for a 2025 Hire
Certification from the State Workforce Agency is the legal prerequisite for the credit. Without a certification letter based on a timely Form 8850 submission, the credit cannot be taken, no matter how well the employee otherwise qualified. If you have that certification in hand, you can still file for the 2025 tax year.
Taxable employers calculate the credit on Form 5884 and report it as part of the general business credit on Form 3800.6Internal Revenue Service. Work Opportunity Tax Credit – Section: Claiming the Credit Partnerships, S corporations, cooperatives, estates, and trusts file Form 5884 directly. Owners whose only source of the credit is a pass-through can report it on Form 3800 without attaching Form 5884.7Internal Revenue Service. Instructions for Form 5884 – Work Opportunity Credit Qualified tax-exempt organizations that hired veterans use Form 5884-C instead, claiming the credit against payroll tax rather than income tax.8Internal Revenue Service. About Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans
One trade-off catches employers off guard. You have to reduce your wage deduction by the amount of credit you claim. A $2,400 WOTC costs you $2,400 in wage deduction on the same return.9Office of the Law Revision Counsel. 26 USC 280C – Certain Expenses for Which Credits Are Allowable The credit almost always beats the deduction because a credit reduces tax dollar-for-dollar while a deduction only reduces taxable income, but factor the lost deduction into any net-benefit calculation.
Carryforward for Unused Credit
The WOTC is non-refundable. It can drive your tax bill to zero, but it will not generate a refund on its own. When the credit exceeds your tax liability, the unused portion carries back one year and forward up to 20 years as part of the general business credit.10Office of the Law Revision Counsel. 26 USC 39 – Carryback and Carryforward of Unused Credits This matters now that the program has expired: credits earned on prior returns remain available for up to two decades.
Hold onto the certification letter, Form 8850, payroll records, timesheets, and offer letters for the full carryforward period you intend to use. The standard IRS employment tax retention floor is four years,11Internal Revenue Service. How Long Should I Keep Records but that isn’t long enough if you’re still drawing on a credit from an earlier year. Keep the substantiation as long as the credit itself might be examined.
State Job Creation Credits
With the federal program dark, state job creation credits are where most 2026 hires will find any incentive at all. Rules vary widely. Most programs require a minimum number of net new full-time positions, commonly one to five. Some tie the credit to wages paid; others offer a flat amount per qualifying hire, often between $500 and $2,000. Businesses in designated enterprise zones or distressed areas frequently qualify for higher amounts.
States typically require the business to be in good standing, to keep the new positions for a retention period of 12 months or longer, and to pay wages above a set threshold. Some peg that threshold to a percentage of the county or regional average wage rather than the minimum wage. Applications generally run through the state Department of Revenue or a workforce development agency, with their own forms and deadlines. Retail and personal-service businesses are excluded from some state programs on the theory that they serve existing demand, but the exclusion is not universal. Check with your state’s revenue or commerce department for current availability, deadlines, and any industry restrictions.
If Congress Renews the Federal Credit
Retroactive renewal is a real possibility given how the WOTC has been treated in the past. Employers who continue to identify hires from the targeted groups and keep the underlying records will be positioned to file amended returns quickly if that happens. The cost of maintaining that documentation is small next to a credit that can reach $9,600 for a single qualifying veteran hire.