What Is the Work Opportunity Tax Credit (WOTC)?

The Work Opportunity Tax Credit is a federal tax credit for employers that hire workers from ten groups who historically face barriers to employment. It can cut a for-profit employer’s federal income tax by up to $2,400 per qualifying hire, and as much as $9,600 for certain veterans.¹ Under current law, the credit applies to eligible employees who begin work on or before December 31, 2025, though Congress has extended it repeatedly and may do so again.

Who Counts as a Targeted Group Hire

Section 51 of the Internal Revenue Code lists ten groups whose members can qualify an employer for the credit. Each new hire has to be certified by a designated local agency, usually the State Workforce Agency, before the credit can be claimed.²

Qualified veterans, including those who received SNAP benefits, have a service-connected disability, or were unemployed for defined periods before hire.¹
TANF recipients from families receiving Temporary Assistance for Needy Families who meet benefit-duration rules.
SNAP recipients aged 18 to 39 whose families received SNAP for the six months ending on the hire date, or three of the prior five months if benefits ended due to work requirements.²
Qualified ex-felons hired within one year of conviction or release.²
Designated community residents aged 18 to 39 living in a federally designated empowerment zone or rural renewal county.²
Vocational rehabilitation referrals from a state agency, a VA rehabilitation program, or a Ticket to Work employment network.³
SSI recipients who received Supplemental Security Income for any month in the 60 days before hire.
Long-term family assistance recipients whose families received TANF for at least 18 consecutive months before hire.²
Qualified summer youth employees aged 16 or 17 who live in an empowerment zone and work for the employer between May 1 and September 15.³
Qualified long-term unemployment recipients out of work for at least 27 consecutive weeks who received unemployment compensation during that period.²

Rehired employees never qualify. Only new hires count.¹

How Much the Credit Is Worth

The credit turns on two numbers: hours worked in the first year and first-year wages paid. If the employee works at least 120 hours but fewer than 400, the credit equals 25% of qualified first-year wages up to the applicable cap. At 400 hours or more, it rises to 40%.¹

For most targeted groups the wage cap is $6,000. At the 40% rate that produces a maximum credit of $2,400 per hire; at 25%, a maximum of $1,500.¹

Higher Caps for Veterans

Several veteran subcategories carry wage caps well above $6,000. The highest, $24,000, applies to disabled veterans who were unemployed for six months or more during the year before hire. At the 40% rate that means a maximum credit of $9,600 per veteran.¹

Long-Term Family Assistance Recipients

This category runs for two years instead of one. The first-year credit is 40% of up to $10,000 in wages, and the second year is 50% of up to $10,000. An employee who stays the full two years can produce up to $9,000 in total credits, split $4,000 and $5,000 between the years.¹

Certification: The 28-Day Deadline

The paperwork begins before the employee is hired. On or before the day the job offer is made, both the applicant and the employer complete and sign IRS Form 8850, the Pre-Screening Notice and Certification Request. The applicant identifies which targeted group they belong to on the form.⁴

A second form goes with it. If the applicant already holds a conditional certification from a participating agency such as Job Corps, the employer submits ETA Form 9062. Otherwise the employer completes ETA Form 9061, which documents the applicant’s individual characteristics. Both are Department of Labor forms.⁴

Once the employee starts work, the employer has 28 calendar days to send Form 8850 and the ETA form to the State Workforce Agency in the state where the employee works.⁵ Miss that window and the credit is lost for that hire, even if the worker genuinely belongs to a targeted group. These forms go to the state agency only, not to the IRS.

Most State Workforce Agencies accept the submission through an online portal; some also accept mail with proof of postmark. The agency checks the individual against government databases and eventually issues a certification or a denial. Response times run anywhere from a few weeks to several months depending on the agency’s backlog. Keep the certification, Form 8850, and supporting documents for at least four years after filing the return that claims the credit.⁶

Claiming the Credit on the Return

For-profit employers compute the credit on Form 5884, Work Opportunity Credit. The result carries to Form 3800, General Business Credit, where it combines with other general business credits and is applied against the employer’s tax liability.¹

One trap catches many first-time filers. The wage expense deduction has to be reduced by the amount of the credit claimed. Claim a $2,400 credit for a given employee and the deductible wages for that employee drop by $2,400 on the same return. The rule prevents a double tax benefit on the same wages.⁷

If the credit is larger than the year’s tax liability, the unused portion generally carries back one year on an amended return or carries forward up to 20 years.⁸

Tax-Exempt Employers

Organizations described in Section 501(c) can claim the credit too, but only for hiring qualified veterans, not for any of the other nine groups.¹ Because these organizations typically owe no income tax, the credit runs against the employer’s share of Social Security tax instead, and it’s capped at that liability for the period. The correct form is Form 5884-C rather than Form 5884.⁹

Using the Credit Alongside Other Wage-Based Credits

The same wages cannot generate more than one credit. An employer can still claim the WOTC and the employer credit for paid family and medical leave for the same worker, as long as different wages support each calculation.¹ Careful wage tracking is what keeps that split defensible if the return is examined.

1
Internal Revenue Service. Work Opportunity Tax Credit
2
Office of the Law Revision Counsel. 26 USC 51 Amount of Credit
3
Office of the Law Revision Counsel. 26 US Code 51 – Amount of Credit
4
Internal Revenue Service. Instructions for Form 8850
5
U.S. Department of Labor. How to File a WOTC Certification Request
6
Internal Revenue Service. Employment Tax Recordkeeping
7
Office of the Law Revision Counsel. 26 US Code 280C – Certain Expenses for Which Credits Are Allowable
8
Office of the Law Revision Counsel. 26 US Code 39 – Carryback and Carryforward of Unused Credits
9
Internal Revenue Service. About Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans