The Work Opportunity Tax Credit (“WOTC”) is a federal tax credit available to employers for hiring individuals from certain target groups.
The amount of the tax credit that employers can claim depends on the target group of the individual hired, the wages paid to that individual and the number of hours that individual worked during the first year of employment. The WOTC only applies to new employees. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.
For the long-term TANF target group, the credit is available to employers through the second year of employment after the employee works at least 400 hours. The employer may claim a tax credit equal to $9,000 total over a two-year period, as follows:
For all other target groups, the credit is available to employers in the first year of employment and is calculated as follows:
The credit is limited to the amount of the business income tax liability or social security tax owed. To claim the credit, an employer must first obtain certification that an individual is a member of the targeted group. This is done by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Once this certification is secured, the employer may claim the tax credit as a general business credit on Form 3800 against their income tax by filing Form 5884, Form 3800, and the business’ related income tax return.
There is a maximum tax credit that can be earned for each target group.
| Requirements | Maximum Tax Credit |
| Unemployed Veterans | |
Veteran who is either:
| If employee works more than 120 hours but less than 400 hours:
If employee works at least 400 hours:
|
| Long-Term Temporary Assistance for Needy Families (TANF) Recipient | |
Person who has either:
| If employee works more than 120 hours but less than 400 hours: N/A If employee works at least 400 hours: $9,000 (over 2 years – see below) |
| Short-Term TANF Recipient | |
| Person who has received TANF benefits for any 9-month period during the 18-month period ending on the hiring date. | If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Supplemental Nutrition Assistance Program (SNAP) Recipient | |
Person who is:
| If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Designated Community Resident | |
Person who is:
| If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Vocational Rehabilitation Referred Individual | |
| Individual with a disability who has completed rehabilitative services provided by a state-certified agency, employment network under the Ticket to Work program or the U.S. Department of Veteran Affairs. | If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Ex-Felon | |
| Individual who has been convicted of a felony and has a hiring date of not more than 1 year after conviction or release from prison. | If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Supplemental Security Income (SSI) Recipient | |
| Individual who is the recipient of SSI benefits for any month that ends during the 60-day period ending on the hire date. | If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
| Summer Youth Employee | |
Individual who is:
| If employee works more than 120 hours but less than 400 hours: $750 If employee works at least 400 hours: $1,200 |
| Qualified Long-Term Unemployment Recipient | |
| Individual who has been unemployed for not less than 27 consecutive weeks and includes a period in which the individual received unemployment compensation under state or federal law. | If employee works more than 120 hours but less than 400 hours: $1,500 If employee works at least 400 hours: $2,400 |
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