Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring and employing individuals from certain targeted groups who have faced significant barriers to employment. The 2021 Consolidated Appropriations Act authorized the extension of the WOTC until December 31, 2025.
The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency as being a member of one of 10 targeted groups. In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:
- is in their first year of employment;
- is certified as being a member of a targeted group; and
- performs at least 400 hours of services for that employer.
Employers can hire employees from the following targeted groups for the WOTC:
1. Qualified IV-A recipient
2. Qualified Veteran
3. Qualified Ex-Felon
4. Designated Community Resident
5. Vocational Rehabilitation Referral
6. Summer Youth Employee
7. Supplemental Nutrition Assistance Program (SNAP "food stamps") recipient
8. Supplemental Security Income (SSI) recipient
9. Long-term Family Assistance recipient
10. Qualified Long-term Unemployment recipient
To obtain the WOTC, the employer and the job applicant must complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit). This should be done on or before the day that an offer of employment is made. Then the employer has 28 calendar days from the new employee’s start date to submit Form 8850 to the designated local agency located in the state in which the business is located (where the employee works). Additional forms may be required by the DOL to obtain certification.