Navigating the Work Opportunity Tax Credit (WOTC)

The U.S. Bureau of Labor Statistics reports that unemployment rates remain historically low, fluctuating between 4.0% and 4.3% from May to November 2024. Amid current hiring challenges, the Work Opportunity Tax Credit (WOTC) offers businesses an opportunity to offset costs by hiring individuals from targeted groups facing significant employment barriers. This tax credit can amount to as much as $2,400 per eligible employee, with higher amounts available for certain veterans and long-term family assistance recipients. The WOTC applies to employees hired before January 1, 2026.

To claim the credit, employers must complete a pre-screening process. Both the job applicant and employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day a job offer is extended.

Eligible Groups for WOTC

Employers can claim the WOTC for wages paid to members of the following targeted groups:

1. Recipients of Temporary Assistance for Needy Families (TANF),
2. Veterans,
3. Ex-felons,
4. Residents of designated communities,
5. Individuals referred by vocational rehabilitation programs,
6. Summer youth employees,
7. Members of families receiving Supplemental Nutrition Assistance Program (SNAP) benefits,
8. Recipients of Supplemental Security Income (SSI),
9. Long-term family assistance recipients, and
10. Long-term unemployed individuals.

Requirements to Qualify

To qualify, employees must complete at least 120 hours of service within their first year of employment. The credit is not available for certain individuals, such as those related to or previously employed by the business.

The maximum credit varies depending on the employee group:

• Up to $2,400 for most eligible employees,
• $4,000 for long-term family assistance recipients,
• $4,800, $5,600, or $9,600 for specific veteran categories, and
• A total of $9,000 over two years for long-term family assistance recipients (including a 50% credit on up to $10,000 of second-year wages).

For summer youth employees, eligible wages must be earned during a 90-day period between May 1 and September 15, with a maximum credit of $1,200 per employee.

A Benefit for Employers and Employees

While there are instances where employers may opt not to claim the WOTC, or the credit may be subject to limitations, it generally offers a win-win opportunity. Businesses can benefit from reduced hiring costs, and individuals from targeted groups gain access to meaningful employment.

Have questions or need assistance? Contact us to explore how the WOTC could benefit your organization.