The Work Opportunity Tax Credit (WOTC) is an often-overlooked program that provides a reduction in federal income taxes to employers that hire individuals from certain targeted groups that face significant barriers to employment.
In general, the maximum credit per qualified employee is $2,400. Exceptions to this, as well as other frequently asked questions regarding qualifying for and claiming this credit, are detailed below.
For which employees may an employer claim the WOTC?
An employer may claim wages paid or incurred to an employee who is certified as being a member of one of the following identified targeted groups:
- Veterans, including disabled veterans
- Recipients of Temporary Assistance for Needy Families (TANF)
- Recipients of Supplemental Nutrition Assistance Program (SNAP)
- Recipients of Supplemental Social Security Income (SSI)
- Individuals who were formerly incarcerated or those previously convicted of a felony
- Individuals referred by an approved vocational rehabilitation program
- Individuals who are residents of areas designated as empowerment zones or rural renewal counties
- Individuals who are experiencing long-term unemployment
- Individuals who are qualified summer youth employees
How is the WOTC calculated?
The WOTC is calculated based on qualified first-year wages, beginning on the day the employee starts work. The maximum amount that may be considered for WOTC is $6,000 per employee, with the following exceptions:
- $1,200 for qualified summer youth employees
- $12,000, $14,000 or $24,000 for qualified veterans (depending on the category under which the veteran qualifies)
The credit is also available for up to $10,000 of qualified second-year wages paid to long-term TANF recipients.
The employer’s total WOTC for the year is calculated by adding three different wage categories:
- 25% of qualified first-year wages for employees who worked at least 120 hours but fewer than 400
- 40% of qualified first-year wages for employees who worked at least 400 hours
- 50% of qualified second-year wages of employees certified as long-term family assistance recipients.
What does an employer need to do to claim the WOTC?
On or before the day an employment offer is made, the employer and job applicant must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit. The employer then has 28 calendar days from the employee’s start date to submit this form to the designated local agency. Note that additional forms may be required by the individual state’s department of labor to obtain certification.
Once an employee is certified by the local agency, eligible wages paid or incurred in the year can then be claimed as a credit on the employer’s tax return by filing Form 5884, Work Opportunity Tax Credit.
Can an employer claim more than one wage-based credit?
An employer may be able to claim WOTC and another wage-based credit for the same employee, as long as the wages used to calculate WOTC are not the same wages used to calculate the other credit.
Is an employer limited on how many individuals they can hire that qualify for the WOTC?
No, there is no limit to the number of employees that can be hired that qualify for the credit.
Is the WOTC a permanent tax credit program?
The WOTC was extended by the Consolidated Appropriations Act through December 31, 2025. Under current law, the credit will no longer be available for wages paid or incurred as of January 1, 2026.
For more information on this credit program, please contact your Schneider Downs representative.
