What a Work Opportunity Tax Credit is

A Work Opportunity Tax Credit (WOTC) is a federal tax reduction that employers can claim when they hire someone from a group that faces documented barriers to employment. The employer gets a credit on their federal income tax return — not a deduction, which means it reduces the tax owed dollar-for-dollar. The credit ranges from $1,200 to $9,600 per new hire, depending on which group the person belongs to and how long they stay employed.

The credit exists to encourage hiring decisions that might not happen otherwise. An employer does not have to hire someone to get the credit, but if they do hire someone who meets the criteria, they can claim it on their taxes. The person being hired does not apply for anything, does not pay anything, and does not report the credit on their own tax return — it is entirely an employer benefit.

The program is run by the U.S. Department of Labor, but employers claim the credit through the IRS on Form 8850 and their regular business tax return. A person looking for work does not interact with the government to make this happen; instead, they may be referred to a job by a workforce development agency, a nonprofit, or directly by an employer who knows about the program.

Key Takeaways

  • Work Opportunity Tax Credits are claimed by employers, not by job seekers, and reduce the employer's federal tax bill when they hire someone from a targeted group.
  • The targeted groups include people receiving certain public benefits, formerly incarcerated individuals, veterans, people with disabilities, and others facing documented employment barriers.
  • An employer must file IRS Form 8850 within 28 days of the person's start date and obtain a certification from a state workforce agency to claim the credit.
  • The credit amount depends on the group and how long the person stays employed, ranging from $1,200 to $9,600 per hire.
  • A person being hired does not need to do anything to trigger the credit — the employer handles all paperwork and the benefit goes to the employer's taxes.

Which groups of workers may have access to for the credit

The Department of Labor defines nine target groups. A person must belong to one of these groups at the time they are hired, and the employer must document that membership.

Supplemental Nutrition Assistance Program (SNAP) recipients: People who have received SNAP benefits (food stamps) for at least three months in the past year, or are a member of a family receiving SNAP.

Supplemental Security Income (SSI) recipients: People receiving SSI payments from Social Security due to disability or age.

Temporary Assistance for Needy Families (TANF) recipients: People receiving TANF cash assistance, or a member of a family receiving TANF.

Vocational Rehabilitation referrals: People referred by a state vocational rehabilitation agency because they have a disability and need support to work.

Ex-felons: People convicted of a felony who were hired within one year of conviction or release from prison.

Designated community residents: People living in a federally designated empowerment zone or renewal community who are at least 18 years old.

Long-term family assistance recipients: People who have received TANF for at least 18 months or have exhausted their TANF may be able to access.

Summer youth employees: People aged 16 or 17 hired between May and September, living in an empowerment zone or renewal community.

may have access to veterans: Veterans who are unemployed or have a service-connected disability, hired within one year of discharge or within one year of receiving a disability rating.

How much the credit is worth

The credit amount depends on which target group the worker belongs to and how long they remain employed. The employer must report the person's wages for the first year of employment.

For most groups, the credit is 25 percent of wages paid in the first year, up to $6,000 in wages, which equals a maximum credit of $1,500. For some groups — including long-term TANF recipients, vocational rehabilitation referrals, and may have access to veterans — the credit is 40 percent of wages paid in the first year (up to $6,000) plus 50 percent of wages paid in the second year (up to $6,000), for a potential total of $4,800 per hire.

Ex-felons hired within one year of conviction or release can generate a credit of 40 percent of first-year wages (up to $6,000) plus 50 percent of second-year wages (up to $6,000), totaling up to $4,800. may have access to veterans with service-connected disabilities can generate up to $9,600 if they are employed for at least 400 hours in the first year and at least 400 hours in the second year.

The credit is not paid out as cash. Instead, the employer reduces their federal income tax liability by the credit amount when they file their tax return. If the credit exceeds the tax owed, some employers can carry the excess credit back or forward to other tax years, depending on their tax situation.

What an employer must do to claim the credit

The employer is responsible for all steps. They must file IRS Form 8850 (Credit for may have access to Wages Paid to Certain New Employees) no later than 28 days after the person starts work. This form certifies that the person belongs to a target group.

The employer must also obtain a certification from a state workforce agency — usually the state's Department of Labor or a local workforce development board — confirming that the person is a member of a target group. This certification is not automatic; the employer or the person being hired must request it from the workforce agency, and the agency verifies the person's status (for example, by checking SNAP records or criminal history).

The employer keeps the certification and Form 8850 with their tax records and includes the credit on their federal tax return (usually Form 1120 for corporations or Schedule C for self-employed individuals). If the employer does not file Form 8850 within 28 days, they lose the right to claim the credit for that hire.

Some employers work with workforce development nonprofits or agencies that help identify workers in target groups and handle the certification paperwork. This is common in states with active WOTC programs, but it is not required — an employer can do it themselves.

How a job seeker might encounter this program

A person looking for work does not apply for a Work Opportunity Tax Credit. Instead, they may be referred to a job by a workforce development agency, a nonprofit, a community college, or a social services organization that knows about the program and has relationships with employers who participate.

If you are receiving SNAP, TANF, SSI, or vocational rehabilitation services, or if you are a veteran or formerly incarcerated, a caseworker or job counselor may tell you about employers in your area who hire people in your situation. Some of these employers participate in WOTC because the tax credit makes hiring you more attractive financially.

You do not need to tell an employer about the credit or ask them to claim it. If they are aware of the program and you meet the criteria, they will handle the paperwork themselves. Your only responsibility is to provide the information they need to verify your status — for example, proof of SNAP receipt or a discharge document if you are a veteran.

Where WOTC programs vary by state

The WOTC program is federal, so the target groups and credit amounts are the same nationwide. However, the strength of the program and how easy it is to claim the credit varies significantly by state.

Some states have dedicated WOTC coordinators and active outreach to employers. These states process certifications quickly and have employers who regularly claim the credit. Other states have minimal WOTC activity, and employers may not know the program exists.

The state workforce agency in your state handles certifications. You can find your state's workforce agency through the Department of Labor's website or by searching "[your state] workforce development board." Some states also run WOTC through a contracted vendor, so the agency may refer you to a private company that processes certifications.

The credit itself does not change by state, but the likelihood that an employer in your area knows about it and uses it does. In states with active programs, you are more likely to be referred to a participating employer by a job counselor or nonprofit.

Frequently Asked Questions

Do I have to tell an employer I am in a target group to get hired?

No. An employer cannot require you to disclose your status as a condition of hiring, and they cannot discriminate based on your membership in a target group. If an employer asks about your status, you can choose whether to answer. The employer claims the credit only if you are hired and they choose to pursue the certification.

Will the credit affect my taxes or benefits?

No. The credit is claimed by the employer on their tax return, not yours. It does not appear on your personal tax return and does not affect your income for purposes of means-tested benefits like SNAP or Medicaid. Your wages are reported normally to you and to the IRS.

What if I leave the job before the credit period ends?

The employer can still claim a partial credit based on the wages you earned before you left. If you leave within the first year, they claim 25 percent of the wages you were paid (or 40 percent for certain groups). If you stay into the second year and then leave, they can claim the second-year credit as well, up to the limits for your group.

Can an employer claim the credit if they hire me through a temp agency?

Yes, but the rules are more complex. If the temp agency is the employer of record, they claim the credit. If you are placed with a client company, the client company may be able to claim the credit if certain conditions are met. Ask the temp agency or the company you are placed with whether they participate in WOTC.

How do I find employers who hire people in my situation?

Contact your state or local workforce development board, your SNAP caseworker, your vocational rehabilitation counselor, or a nonprofit that serves your community. These organizations often know which employers in your area participate in WOTC and are actively hiring. You can also search the Department of Labor website for your state's WOTC coordinator.