The Work Opportunity Tax Credit (WOTC) is a Federal tax credit created as an incentive to employers to hire individuals from certain target groups that have consistently faced significant barriers to employment. The Consolidated Appropriation Act of 2021 extended the WOTC until December 31, 2025, giving employers additional time to make qualifying hires and claim the credit.
To be eligible for the credit, employers must hire eligible employees from the following target groups:
- Qualified IV-A Recipient
- Qualified Veteran
- Designated Community Resident (DCR)
- Vocational Rehabilitation Referral
- Summer Youth Employee
- Supplemental Nutrition Assistance Program (SNAP) Recipient
- Supplemental Security Income (SSI) Recipient
- Long-Term Family Assistance Recipient
- Qualified Long-Term Unemployment Recipient
There is no limit to the number of new hires who can qualify the employer for tax savings, but the amount of the tax credit is based on a percentage of qualified wages paid to the new employee(s) for the first year of employment only, and limited to the amount of business income tax liability or Social Security tax owed. Both the percentage and the cap on qualifying wages vary based on which target group the new employee falls into.
To claim the credit, an employer must first obtain certification that the hired individual is a member of the targeted group, and file Form 8850—a Pre-Screening Notice and Certification Request for the Work Opportunity Credit—within 28 days from the eligible employee’s start date. Then, taxable employers may claim the credit as a general business credit against their income tax by filing Form 5884 and Form 3800 with their income tax return. Qualified tax-exempt organizations can claim the credit on Form 5884-C.
If you have any questions about the WOTC or eligibility requirements, please leave a comment below or feel free to reach out to me directly, I’m happy to help!