Employers who hire individuals from certain target groups may be eligible for the Work Opportunity Tax Credit (WOTC), a federal tax credit designed to incentivize workforce diversity and facilitate access to good jobs. This program can offer significant savings, with up to $9,600 available per qualified employee, depending on the target group and wages paid.
What is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring and employing individuals who have consistently faced significant barriers to employment. Jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL), WOTC aims to support workforce development by encouraging employers to consider a broader range of job applicants. The program has been extended multiple times and, as of current legislation, is authorized for wages paid to individuals who begin work on or before December 31, 2025.
Who Qualifies?
Eligibility for the WOTC applies to both the employer and the employee.
- Eligible Employers: Employers of all sizes, including both taxable and certain tax-exempt organizations, are generally eligible. Taxable employers can claim the WOTC against income taxes. Eligible tax-exempt employers, however, can claim the WOTC only against payroll taxes and exclusively for wages paid to members of the Qualified Veteran targeted group.
- Eligible Employees: An employee must be certified by a State Workforce Agency (SWA) as being a member of one of 10 targeted groups. These groups include, but are not limited to:
- Qualified Veterans
- Recipients of Temporary Assistance for Needy Families (TANF)
- Recipients of Supplemental Nutrition Assistance Program (SNAP) benefits
- Long-term unemployment recipients
- Individuals formerly incarcerated or previously convicted of a felony
- Individuals referred to an employer following completion of a rehabilitation plan or program
- Recipients of Supplemental Security Income (SSI) benefits
- Residents in areas designated as empowerment zones or rural renewal counties
Note that employers typically cannot claim the WOTC for employees who are rehired.
What You Can Get
The WOTC offers a credit based on a percentage of qualified wages paid to eligible employees in their first year of employment. The specific amount of the credit can vary:
- General Credit: For most targeted groups, the WOTC is generally equal to 40% of up to $6,000 of qualified first-year wages, resulting in a maximum tax credit of $2,400 per eligible employee. This applies if the employee performs at least 400 hours of service for the employer.
- Reduced Credit: A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer.
- Higher Credit for Qualified Veterans: For certain qualified veterans, up to $24,000 in wages may be taken into account when determining the WOTC. This can result in a maximum credit of up to $9,600 (40% of $24,000) for these specific hires.
Taxable employers may generally carry the current year’s unused WOTC back one year and then forward 20 years. For specific details on credit calculations and carryover rules, refer to the Instructions to Form 3800 (General Business Credit) and Form 5884.
How to Apply — Step-by-Step
Applying for the Work Opportunity Tax Credit involves a few key steps, primarily centered around timely submission of forms to your State Workforce Agency (SWA) and the IRS.
- Complete Pre-Screening Form: On or before the day that an offer of employment is made, the employer and the job applicant must complete IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.”
- Submit to State Workforce Agency (SWA): The employer has 28 calendar days from the new employee’s start date to submit the completed Form 8850 to the designated local agency (SWA) in the state where the business is located (where the employee works). Additional forms may be required by the DOL to obtain certification.
- Receive Certification: The designated local agency will review the submission and, if the employee qualifies, issue a certification that the employee is a member of one of the 10 targeted groups.
- Claim the Credit on Your Tax Return: Once certification is received, employers can claim the WOTC on their federal income tax return.
- Taxable Employers: File IRS Form 5884, “Work Opportunity Credit.”
- Tax-Exempt Employers: File IRS Form 5884-C, “Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans,” but only for wages paid to qualified veterans.
It is key to adhere to the deadlines, especially the 28-day window for submitting Form 8850, as missing this can result in forfeiture of the credit. For detailed instructions, always consult the official IRS WOTC page and the instructions for Forms 8850, 5884, and 5884-C.
Common Mistakes & Pitfalls
Navigating tax credits can be complex. Employers should be aware of common issues that can prevent them from successfully claiming the WOTC:
- Missing the 28-Day Deadline: The most frequent pitfall is failing to submit Form 8850 to the State Workforce Agency within 28 calendar days of the eligible employee’s start date. This deadline is strict and generally non-negotiable, though transition relief has been provided in specific past circumstances.
- Incomplete or Incorrect Form 8850: Errors or omissions on Form 8850 can lead to delays or rejection of the certification request. Ensure all sections are accurately completed by both the employer and the job applicant.
- Not Completing Form 8850 Timely: Form 8850 must be completed with the job applicant on or before the day a job offer is made, not just submitted within 28 days of the start date.
- Hiring Rehired Employees: The WOTC cannot be claimed for employees who have been rehired by the same employer.
- Lack of Employee Certification: The credit is only available for employees who are formally certified by a State Workforce Agency as belonging to one of the targeted groups. Without this certification, the credit cannot be claimed.
- Tax-Exempt Employer Limitations: Tax-exempt organizations can only claim the WOTC for qualified veterans and only against payroll taxes. Attempting to claim for other targeted groups or against income taxes will typically result in denial.
- Insufficient Hours of Service: Employees must perform at least 120 hours of service for the employer to qualify for any credit, and at least 400 hours for the maximum general credit amount.
Frequently Asked Questions
Q1. What is the Work Opportunity Tax Credit (WOTC)?
A1. The WOTC is a federal tax credit provided under section 51 of the Internal Revenue Code. It is jointly administered by the IRS and the Department of Labor (DOL) and is available to employers who hire individuals from certain targeted groups that have faced significant barriers to employment.
Q2. Are both taxable and tax-exempt employers eligible to claim the WOTC?
A2. Yes, employers of all sizes, including both taxable and certain tax-exempt employers located in the United States and its territories, are eligible. However, tax-exempt employers can only claim the WOTC against payroll taxes and only for wages paid to members of the Qualified Veteran targeted group.
Q3. For which employees may an employer claim the WOTC?
A3. An employer may claim the WOTC for an individual who is certified as a member of one of 10 targeted groups. These include, for example, qualified veterans, recipients of certain government assistance programs (like TANF or SNAP), individuals experiencing long-term unemployment, and formerly incarcerated individuals. The employee must be in their first year of employment and meet specific hours-of-service requirements.
Q4. What forms does an employer need to claim the WOTC?
A4. To start the process, employers and job applicants must complete IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the job offer date. This form must then be submitted to the State Workforce Agency within 28 days of the employee’s start date. After receiving certification, taxable employers typically file Form 5884 (Work Opportunity Credit), while eligible tax-exempt employers file Form 5884-C (Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans) to claim the credit.
Where to Get Help
- Apply or check status: SBA.gov
- Free counseling from SCORE (sba.gov/local-assistance/find/?type=SCORE) or Small Business Development Centers (SBDC)
- Tax-related questions: IRS.gov or consult a licensed tax professional
- SBA Answer Desk: 1-800-827-5722
Written by Megan Sinclair, Benefits & Grants Researcher, Sapipine, Inc. · Cross-checked against official .gov program rules · About our research · Last verified: 2026-05-13
Primary Sources: U.S. Small Business Administration (SBA.gov) and IRS. Official program page: https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit
DISCLAIMER: Gov Money Map is not a government agency, tax advisor, financial advisor, or law firm. This page provides general educational information only. Federal program rules, dollar amounts, and eligibility criteria change frequently — verify current details with the official agency before submitting an application or making a financial decision. Last updated: May 2026.