What the Work Opportunity Tax Credit is

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces what an employer owes in income taxes when they hire someone from a group that faces barriers to employment. The employer claims the credit on their business tax return, not the worker. The credit is worth between $1,200 and $9,600 per new hire, depending on which group the worker belongs to and how long they stay employed.

This is a real tax reduction — money the business doesn't have to send to the IRS. It's designed to encourage hiring of people who might otherwise be passed over: formerly incarcerated individuals, veterans, people receiving certain government benefits, long-term unemployed workers, and others. The worker doesn't apply for anything or fill out forms on their own; the employer handles the paperwork with the Department of Labor.

Key Takeaways

  • The WOTC is a tax credit for employers, not a benefit for workers — the employer claims it on their business return to reduce taxes owed.
  • The credit ranges from $1,200 to $9,600 per hire depending on the worker's circumstances and how long they stay in the job.
  • The employer must certify the worker's may be able to access with the Department of Labor before or shortly after hiring, using Form WO-9 and state documentation.
  • The worker must stay employed for a minimum period (usually 120 to 400 hours, depending on the category) for the employer to claim the full credit.
  • A worker can benefit indirectly if an employer uses the tax savings to invest in training, wages, or hiring more people.

Who qualifies for the credit

The Department of Labor defines nine target groups. The most common are: individuals with felony convictions hired within one year of release or sentencing; veterans (especially those receiving unemployment benefits or with service-connected disabilities); people receiving Supplemental Nutrition Assistance Program (SNAP) benefits; people receiving Temporary Assistance for Needy Families (TANF); individuals ages 16 to 24 from low-income families; and people who have been unemployed for 27 or more consecutive weeks.

Other groups include vocational rehabilitation referrals, people with disabilities, and summer youth employees in certain circumstances. The worker doesn't have to disclose their status to coworkers — the employer verifies it confidentially with state labor agencies or the Department of Labor using documents like discharge papers, benefit letters, or unemployment records.

How employers claim the credit

The employer starts by having the new hire complete Form WO-9 (Request for Taxpayer Identification Number and Certification), which asks whether they fall into one of the target groups. The employer then submits this form and supporting documents (like a discharge certificate or SNAP letter) to the state workforce agency, usually within 28 days of the hire date, though some states allow up to 21 days before hire.

The state agency reviews the documents and issues a certification if the worker qualifies. The employer keeps this certification and uses it when filing their business tax return — typically Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit) attached to their federal return. The credit is claimed in the year the worker is hired, though the employer must meet employment duration requirements to claim the full amount.

How long the worker must stay employed

The minimum employment period varies by target group. For most categories, the worker must complete 120 hours of work within the first 12 months of hire. For some groups — like veterans with service-connected disabilities or people receiving TANF — the requirement is 400 hours within the first 12 months. If the worker leaves before hitting the minimum, the employer can claim a reduced credit or no credit at all, depending on how many hours were completed.

The hours don't have to be consecutive, and part-time work counts. An employer can claim the credit even if the worker eventually leaves the job, as long as the hour threshold is met before the claim is filed. This means a worker hired in January who works part-time and reaches 120 hours by October can still result in a full credit claim.

How much the credit is worth

The credit amount depends on the target group and the hours worked. For most groups, the credit is 25% of wages paid up to $6,000 in the first year, which equals $1,500. For some categories — like veterans with service-connected disabilities or long-term TANF recipients — the credit can be up to 40% of wages in the first year and 50% in the second year, reaching $9,600 total across two years.

The credit is calculated on actual wages paid during the may have access to period. If a worker earns $15 per hour and works 120 hours, that's $1,800 in wages; a 25% credit would be $450. The employer claims this reduction against their federal income tax liability for that tax year.

What happens if the employer makes a mistake

If the employer submits incorrect information or the worker doesn't actually meet the criteria, the IRS can disallow the credit and the employer may owe back taxes plus interest. However, the employer is not penalized if they relied on incorrect information provided by the worker or the state agency, as long as they made a good-faith effort to verify may be able to access.

The worker is not responsible for repaying any credit claimed on their behalf. The credit is between the employer and the IRS. If an employer discovers an error before filing, they can withdraw the certification request. If discovered after filing, they can amend their return.

How this affects workers indirectly

While workers don't receive the credit directly, they can benefit when employers use the tax savings to expand hiring, increase training budgets, or invest in wage growth. Some employers specifically recruit from target groups because the credit makes hiring less costly. For workers in these groups, the WOTC can mean the difference between being considered for a job or being overlooked.

The credit also removes a barrier: an employer might hesitate to hire someone with a felony conviction or a long unemployment gap, but the tax credit offsets the perceived risk. This can open doors for workers who face real discrimination in hiring, even though the worker themselves never sees the money.

Frequently Asked Questions

Do I have to tell my employer I'm in one of the target groups?

No. Your employer asks on Form WO-9, but you can decline to answer. If you do answer yes, your employer will ask for documents to verify — like a discharge certificate, benefit letter, or unemployment records. The verification is confidential and doesn't go to your coworkers.

Can I lose my job because of the WOTC?

No. The credit cannot be used as a reason to fire you, and your employer cannot treat you differently because of it. The credit is meant to encourage hiring, not to create a probationary status. You have the same rights and protections as any other employee.

What if I was hired but my employer never filed the paperwork?

The credit is lost — your employer had a deadline (usually 28 days after hire) to submit the certification request to the state. You are not affected, but your employer cannot go back and claim it later. This is why some employers ask about target group status early in the hiring process.

Does the WOTC affect my taxes or benefits?

No. The credit is claimed by your employer on their business return, not on your personal tax return. It does not reduce your wages, change your tax filing, or affect any government benefits you receive. Your pay stub and W-2 are unaffected.

Can an employer claim the credit if I work part-time?

Yes. Part-time hours count toward the 120-hour or 400-hour minimum, depending on your target group. An employer can claim the credit even if you work 10 hours a week, as long as you reach the threshold within 12 months of hire.