Work Opportunity Credit Explained

The Work Opportunity Tax Credit (WOTC) is a federal tax credit offered by the IRS to employers who hire individuals from certain targeted groups that face significant barriers to employment.

Purpose of WOTC

WOTC incentivizes employers to hire workers from groups that historically face employment challenges, helping these individuals gain valuable work experience while providing employers with tax savings.

Qualifying Target Groups

Employees must be from one of these target groups:

• TANF (Temporary Assistance for Needy Families) recipients
• Veterans (including disabled veterans)
• Ex-felons hired within one year of conviction or release
• SNAP (food stamp) recipients (ages 18-39)
• Summer youth employees (ages 16-17) from high-crime areas
• Vocational rehabilitation referrals
• Qualified long-term unemployment recipients
• SSI recipients

Credit Amounts

The credit varies by target group and hours worked:

• Generally 25% of first-year wages up to $6,000 (maximum $1,500 credit)
• 40% of first-year wages if employee works 400+ hours (maximum $2,400 credit)
• Special rates for veterans and certain other groups
• Summer youth: 25% of first-year wages up to $3,000 (maximum $750 credit)

Eligibility Requirements

To claim WOTC, employers must:

• Obtain certification from state workforce agency
• Submit Form 8850 within 28 days of employee's start date
• Have employee complete IRS Form 8850 and ETA Form 9061/9062
• Ensure employee meets target group requirements
• Meet minimum hours worked requirements

Application Process

The WOTC application process involves several steps:

• Pre-screen potential employees for target group membership
• Complete and submit required forms within deadlines
• Wait for state workforce agency certification
• Claim credit on business tax return using Form 5884

Benefits for Employers and Employees

WOTC provides mutual benefits:

• Employers receive significant tax savings
• Access to motivated workers from underserved populations
• Employees gain valuable work experience and income
• Communities benefit from reduced unemployment