Summary: This article explains the Work Opportunity Tax Credit (WOTC), including which groups qualify, how businesses can claim it, and the financial benefits available.
What is the Work Opportunity Tax Credit (WOTC)?
Work Opportunity Tax Credit, or WOTC, is a tax credit available to employers who hire employees from one of the targeted groups who face issues securing employment in the U.S. This credit motivates employers to broaden their horizons and consciously look for employees within the targeted groups. The WOTC is available for wages paid to a targeted group of individuals who begin work on or before December 31, 2025.
An employer is eligible to receive WOTC equal to 40% of up to $6,000 of wages paid to an individual from the targeted group who is in their first year of employment and has worked at least 400 hours for that employer.
Employers can claim WOTC by filling out Form 8850 once an offer of employment is made, but they only have 28 calendar days after the new hire starts to claim this credit. The Form 8850 has two sections to be completed; one is for the job applicant to fill out.
WOTC Targeted Groups
There are 10 groups that, if you hire from them, you can be eligible for WOTC. The details of each are below:
Qualified IV-A ("TANF") recipient
This refers to an individual who is a member of a family receiving state support under the Temporary Assistance for Needy Families (TANF) program.
Qualified Veteran
This refers to a veteran who falls into any of the following categories:
- A member of a family receiving support under the Supplemental Nutrition Assistance Program (SNAP) for at least 3 months during the 15 months ending on their hiring date.
- Unemployed for at least 4 weeks but less than 6 months in the 1 year before their hiring date.
- Unemployed for a total of at least 6 months in the 1 year before their hiring date.
- Veterans entitled to compensation for a service-related disability and hired not more than 12 months after being discharged or released from active duty in the U.S. Armed Forces.
- Veterans entitled to compensation for a service-connected disability and unemployed for at least 6 months in the 1 year before their hiring date.
Qualified Ex-Felon
This refers to an individual hired within 12 months of being convicted of a felony or being released from prison for a felony.
Designated Community Resident
This refers to an individual who, on the hiring date, is at least 18 years of age and under 40 years old and has a primary residence within either an Empowerment Zone (EZ) or a Rural Renewal County (RRC).
According to the IRS, below are the EZ & RRC locations:
Empowerment Zone (Urban Areas)
| Empowerment Zone (Urban Areas) | |
|---|---|
| Baltimore, MD | Fresno, CA |
| Boston, MA | Gary/Hammond/East Chicago, IN |
| Chicago, IL | Huntington, WV/Ironton, OH |
| Cincinnati, OH | Jacksonville, FL |
| Cleveland, OH | Knoxville, TN |
| Columbia/Sumter, SC | Los Angeles, CA (city and county) |
| Columbus, OH | Miami/Dade County, FL |
| Cumberland County, NJ | Minneapolis, MN |
| Detroit, MI | New Haven, CT |
| El Paso, TX | New York, NY |
| Philadelphia, PA/Camden, NJ | Norfolk/Portsmouth, VA |
| Pulaski County, AR | Oklahoma City, OK |
| San Antonio, TX | Santa Ana, CA |
| St. Louis, MO/East St. Louis, IL | Syracuse, NY |
| Tucson, AZ | Yonkers, NY |
Empowerment Zone (Rural Areas)
| Empowerment Zone (Rural Areas) | |
|---|---|
| Aroostook County, ME (part of Aroostook County) | Desert Communities, CA (part of Riverside County) |
| Griggs-Steele, ND (part of Griggs County and all of Steele County) | Kentucky Highlands, KY (part of Wayne County and all of Clinton and Jackson Counties) |
| Mid-Delta, MS (parts of Bolivar, Holmes, Humphreys, Leflore, Sunflower, and Washington Counties) | Middle Rio Grande FUTURO Communities, TX (parts of Dimmit, Maverick, Uvalde, and Zavala Counties) |
| Oglala Sioux Tribe, SD (parts of Jackson and Bennett Counties and all of Shannon County) | Rio Grande Valley, TX (parts of Cameron, Hidalgo, Starr, and Willacy Counties) |
| Southernmost Illinois Delta, IL (parts of Alexander and Johnson Counties and all of Pulaski County) | Southwest Georgia United, GA (part of Crisp County and all of Dooly County) |
Rural Renewal Counties (RRC)
| Rural Renewal Counties (RRC) | |
|---|---|
| Alabama | The counties of Butler, Dallas, Macon, Perry, Sumter, and Wilcox. |
| Alaska | The census areas of Aleutians West, Wrangell-Petersburg, and Yukon-Koyukuk. |
| Arkansas | The counties of Arkansas, Chicot, Clay, Desha, Jackson, Lafayette, Lee, Little River, Monroe, Nevada, Ouachita, Phillips, Union, and Woodruff. |
| Colorado | The counties of Cheyenne, Kiowa, and San Juan. |
| Georgia | The counties of Randolph and Stewart. |
| Illinois | The counties of Alexander, Edwards, Franklin, Gallatin, Greene, Hancock, Hardin, Jasper, Knox, McDonough, Montgomery, Pulaski, Randolph, Richland, Scott, Warren, Wayne, and White. |
| Indiana | Perry County. |
| Iowa | The counties of Adair, Adams, Appanoose, Audubon, Butler, Calhoun, Cass, Cherokee, Clay, Clayton, Emmet, Floyd, Franklin, Fremont, Hancock, Humboldt, Ida, Keokuk, Kossuth, Montgomery, Osceola, Palo Alto, Pocahontas, Poweshiek, Sac, Taylor, Union, Wayne, Winnebago, and Worth. |
| Kansas | The counties of Atchison, Barber, Barton, Brown, Clay, Cloud, Comanche, Decatur, Edwards, Elk, Ellsworth, Gove, Graham, Greeley, Greenwood, Harper, Hodgeman, Jewell, Kiowa, Labette, Lane, Lincoln, Marshall, Mitchell, Montgomery, Ness, Osborne, Phillips, Rawlins, Republic, Rooks, Rush, Russell, Scott, Sheridan, Sherman, Smith, Stafford, Trego, Wallace, Washington, Wichita, and Woodson. |
| Kentucky | The counties of Bell, Caldwell, Floyd, Harlan, Hickman, Leslie, Letcher, Pike, and Union. |
| Louisiana | The parishes of Bienville, Claiborne, Franklin, Jackson, Morehouse, St. Mary, Tensas, Vernon, and Webster. |
| Maine | The counties of Aroostook and Piscataquis. |
| Michigan | The counties of Gogebic, Marquette, and Ontonagon. |
| Minnesota | The counties of Big Stone, Chippewa, Cottonwood, Faribault, Jackson, Kittson, Koochiching, Lac Qui Parle, Lincoln, Marshall, Martin, Murray, Norman, Pipestone, Red Lake, Redwood, Renville, Stevens, Traverse, Wilkin, and Yellow Medicine. |
| Mississippi | The counties of Adams, Coahoma, Humphreys, Montgomery, Quitman, Sharkey, Tallahatchie, and Washington. |
| Missouri | The counties of Atchison, Carroll, Chariton, Clark, Holt, Knox, Mississippi, New Madrid, Pemiscot, and Worth. |
| Montana | The counties of Carter, Daniels, Dawson, Deer Lodge, Fallon, Garfield, Hill, Liberty, McCone, Petroleum, Phillips, Powder River, Prairie, Richland, Roosevelt, Rosebud, Sheridan, Valley, and Wibaux. |
| Nebraska | The counties of Antelope, Banner, Boone, Box Butte, Boyd, Burt, Cedar, Chase, Deuel, Dundy, Fillmore, Franklin, Garden, Garfield, Greeley, Hayes, Hitchcock, Holt, Jefferson, Johnson, Logan, Nance, Nemaha, Nuckolls, Pawnee, Perkins, Red Willow, Richardson, Rock, Sheridan, Sherman, Thayer, Thomas, Valley, Webster, and Wheeler. |
| Nevada | The counties of Esmeralda, Lander, and Mineral. |
| New Hampshire | Coos County. |
| New Mexico | The counties of Harding and Quay. |
| New York | The counties of Clinton and Montgomery. |
| North Dakota | The counties of Adams, Barnes, Benson, Billings, Bottineau, Burke, Cavalier, Dickey, Divide, Dunn, Eddy, Emmons, Foster, Golden Valley, Grant, Griggs, Hettinger, Kidder, LaMoure, Logan, McHenry, McIntosh, McKenzie, McLean, Mercer, Mountrail, Nelson, Oliver, Pembina, Pierce, Ramsey, Ransom, Renville, Sargent, Sheridan, Slope, Stark, Steele, Stutsman, Towner, Traill, Walsh, Wells, and Williams. |
| Ohio | The counties of Crawford, Monroe, Paulding, Seneca, and Van Wert. |
| Oklahoma | The counties of Alfalfa, Beaver, Cimarron, Custer, Dewey, Ellis, Grant, Greer, Harmon, Harper, Kiowa, Major, Roger Mills, Seminole, Tillman, and Woodward. |
| Pennsylvania | The counties of Venango and Warren. |
| South Carolina | Marlboro County. |
| South Dakota | The counties of Aurora, Campbell, Clark, Day, Deuel, Douglas, Faulk, Grant, Gregory, Haakon, Hand, Harding, Hutchinson, Jones, Kingsbury, Marshall, McPherson, Miner, Perkins, Potter, Sanborn, Spink, Tripp, and Walworth. |
| Texas | The counties of Andrews, Bailey, Baylor, Borden, Briscoe, Brooks, Castro, Cochran, Coleman, Collingsworth, Cottle, Crane, Culberson, Deaf Smith, Dimmit, Eastland, Fisher, Floyd, Foard, Gray, Hall, Hardeman, Haskell, Hemphill, Hockley, Hutchinson, Kenedy, Kent, Knox, Lamb, Martin, McCulloch, Morris, Nolan, Oldham, Reagan, Reeves, Refugio, Roberts, Scurry, Stonewall, Terrell, Terry, Upton, Ward, Wheeler, Wilbarger, Winkler, Yoakum, and Zavala. |
| Virginia | The counties of Buchanan, Dickenson, Highland, and Lee, and the independent cities of Clifton Forge, Covington, Norton, and Staunton. |
| West Virginia | The counties of Calhoun, Gilmer, Logan, McDowell, Mercer, Mingo, Summers, Tucker, Webster, Wetzel, and Wyoming. |
| Wyoming | The counties of Carbon and Niobrara. |
Vocational Rehabilitation Referral
This refers to an individual having a physical or mental disability and has been referred to the employer while receiving or completing rehabilitative services.
Summer Youth Employee
This refers to an individual who is at least 16 years old but under the age of 18 on the hiring date or on May 1, whichever is later. They should reside in an empowerment zone and can perform services for the employer only between May 1 and September 15 (they were not employed prior to May 1).
Supplemental Nutrition Assistance Program (SNAP or "food stamps") recipient
This refers to an individual who is at least 18 years old and under 40 years old and has been receiving SNAP (food stamps) benefits for the previous 6 months or at least for 3 months of the previous 5 months on the hiring date.
Supplemental Security Income (SSI) recipient
This refers to an individual who has received support from SSI for at least one month within the 60 days before their hire date.
Long-term Family Assistance (Long-term TANF) recipient
This refers to an individual who is a member of a family that meets at least one of the following conditions at the time of hiring:
- Received assistance through an IV-A program for at least the past 18 consecutive months.
- Received assistance through an IV-A program for at least 18 months starting after 8/5/1997, with no more than two years having passed since the end of those 18 months.
- Became ineligible for IV-A program assistance due to a federal or state time limit on payments, with no more than two years having passed since the assistance ended.
Qualified Long-term Unemployment recipient
This refers to an individual who has been unemployed for at least consecutive 27-weeks at the time of hiring and received unemployment compensation or benefits during some or all of the unemployment period.
Qualifying & Claiming WOTC
Employers are required to submit Form 8850 and screen candidates for WOTC before you hire them. Here are the step-by-step instructions:
- Download Form 8850 from the IRS website.
- There are two sections to complete. The first section concerns the applicant’s information, which an employer should ask the applicant to complete ideally before the offer is made but no later than the day the offer is extended.
- Employers are required to fill out the rest of the form no later than the day an offer was made to the applicant.
- The completed form should be signed by both the applicant and the employer.
- An additional form to complete is DOL Form 9061, which should be filled out using the information from Form 8850. Either the applicant or employer can complete and sign the form. Form 9061 helps state workforce agencies (SWAs) determine eligibility for the WOTC.
- Both Forms 8850 and Form 9061 need to be filed with the state workforce agency (SWA).
- The forms should be filed no later than 28 days after the hire date.
- Once forms are submitted, the state workforce agency will determine your eligibility and inform you.
- If you have received a positive response from SWA, you are required to wait until your employees have worked at least 120 hours in the first year to qualify.
- Fill out IRS Form 5884, which asks you to mention your WOTC-certified employees’ hours and wages. This filled form needs to be attached to your tax return.
- If you are a tax-exempt organization and hire a qualified veteran, you must submit IRS Form 5884-C separately instead of including it with your tax return.
- You are required to retain your records for a minimum of five years, including all WOTC-related documents such as job applications, employee details, pay stubs, IRS forms, and state workforce agency approvals.
WOTC Amount
If you qualify for WOTC, the exact amount of credit you are eligible for will vary depending on multiple factors, such as:
- Category of employee hired
- Compensation
- Hours Worked
The maximum tax credit you qualify for is 40% of an individual’s first-year wages up to $6,000, or $2,400 in a one-year period. The employee should have worked for a minimum of 400 hours in a year for the employer to be eligible for a 40% credit.
If the employee worked less than 400 hours but more than 120 hours in a year, the employer is eligible to apply for a 25% credit on their first year’s wages.
There are some exceptions to the credit amount; these are:
| Veteran Type | Qualification | Maximum Tax Credit | Maximum Tax Credit Amount |
|---|---|---|---|
| Disabled Veteran (Hired within one year of separation) | Hired within one year of separation from military service | 40% of first-year wages up to $12,000 | $4,800 for a one-year period |
| Disabled Veteran (Unemployed for 6 months or more) | Unemployed for 6 months or more before being hired | 40% of first-year wages up to $24,000 | $9,600 for a one-year period |
| Unemployed Veteran (Unemployed for 6 months or more) | Unemployed for 6 months or more before being hired (not necessarily disabled) | 40% of first-year wages up to $14,000 | $5,600 for a one-year period |
Authors:
Susan is an experienced, certified HR and compliance professional who provides HR and compliance strategies to companies with global and US-based teams.