Work Opportunity Tax Credit

The Work Opportunity Tax Credit gives tax relief to employers. It helps companies that hire people who often face job struggles. These may include workers with low skills, criminal records, or long gaps in work. WOTC helps businesses save on taxes and supports job growth. It also gives people a fair chance to rejoin the workforce and feel part of the community.

This tax credit lasts through December 31, 2025. It gives firms a chance to cut tax costs and make a real social impact.

What is a Tax Credit

A tax credit lowers how much tax you owe. It works better than a tax deduction. A deduction reduces the income you pay tax on. A credit reduces the tax itself.

Example:

If your business owes $5,000 in taxes and you claim a $2,400 tax credit, your new tax bill is $2,600.

“There are two basic kinds of tax credits.

• Refundable Tax Credit: If your credit is more than your tax, you get the extra as a refund.
  
• Non-refundable Tax Credit: You can reduce your tax to zero, but you won’t get money back if the credit is more than your tax.
  

Tax credits support key goals such as:

• Hiring workers from target groups
• Using clean energy
• Paying for education
  

Key Facts About the WOTC

Here are the most important points to know about the Work Opportunity Tax Credit (WOTC):

Program Validity

• You can claim the WOTC for qualified workers hired on or before December 31, 2025. This allows time to plan your hiring and still claim the tax break

Standard Credit Amount

• You earn 40% back on $6,000 in wages if the hire meets 400 hours. This can give you a $2,400 tax credit per worker, which cuts real costs.

Reduced Hours Credit

• If a worker puts in 120 to 399 hours, you can still claim 25% of their wages.
  This is helpful if you hire part-time or seasonal staff in bulk.

Special Credit for Veterans

• Some veterans bring a much higher credit. You could claim up to $9,600 if you hire a vet who is long-term jobless or disabled. Hiring veterans can also raise team morale and work ethic.

No Credit for Rehired Workers

• You can only claim the WOTC for new hires, not for workers who previously worked at your company.
• Always check employee records to avoid mistakes with this rule.

Carrying Unused Credit

• Unused credit can be moved ahead 20 years or back one year.
• This gives you more ways to make the most of your tax savings.

Who Can Claim the Work Opportunity Tax Credit?

Taxable Employers

• Most businesses that pay federal income tax can claim the WOTC. This includes small, mid-sized, and large firms.
• The credit works well across sectors like retail, manufacturing, and services.

Eligible Nonprofits

• Some nonprofit groups can claim the WOTC, but only for qualified veterans. They can use the credit to reduce their payroll tax bills.
• This option helps nonprofits hire from veteran talent pools and reduce hiring costs.

Which Employees May an Employer Claim the WOTC For?

Employers may claim the Work Opportunity Tax Credit (WOTC) for the following categories of employees:

1. Veterans

This includes those unemployed for long periods, disabled, or receiving public aid. They bring discipline and leadership to the workplace.

2. Former Felons

Hiring ex-felons helps reduce repeat offenses and offers a second chance. It also promotes workplace diversity.

3. SNAP Recipients

These workers come from families receiving food aid under the Supplemental Nutrition Assistance Program.

4. SSI Recipients

People receiving Supplemental Security Income (SSI) also qualify. They may face economic or physical hardship that limits job access.

5. TANF Recipients

Long-term Temporary Assistance for Needy Families (TANF) recipients face big hurdles to stable employment.

6. Vocational Rehab Referrals

These include workers coming from rehab or job training programs. They bring fresh energy and motivation to workplaces.

7. Designated Community Residents

This group includes people who live in areas with high unemployment or low income. Hiring from this group helps lift local economies.

8. Long-Term Unemployed

People without work for over 27 weeks may be eligible. Giving them a job helps break the cycle of long unemployment.

How to Claim the WOTC

Follow these steps to claim the WOTC:

Step 1: Fill Out IRS Form 8850

• Before or on the hire’s first workday, you and the new worker must fill out IRS Form 8850. This helps screen for eligibility.
• The form is your first move in the process.

 Step 2: Submit the Form

• Send Form 8850 to your State Workforce Agency (SWA) within 28 days of the new hire’s start date.
• Missing this deadline means losing the tax credit.

Step 3: Wait for Certification

• The state will check the form and confirm if the hire is a match.Only then can you move forward with the claim.

Step 4: Claim the Credit on Tax Return

• Once certified, fill out IRS Form 5884 to claim the WOTC on your federal tax return.

Benefits of the WOTC for Employers

Save on Taxes

Each qualified hire can bring up to $9,600 in tax credit, depending on the group and hours worked.

This helps reduce your overall tax bill in a big way.

Hire with Purpose

You can build a team that includes people from diverse and challenged backgrounds. It builds a stronger work culture.

Support Economic Growth

By hiring from target groups, you help local economies grow and improve people’s lives.

Boost Brand Image

Your brand earns respect when you hire responsibly. Clients and customers value businesses that give people second chances.

Lower Recruitment Costs

Workers from target groups often connect through local job agencies or government programs. It saves time and cuts hiring costs.  It also speeds up the process and fills roles faster.

Improve Employee Loyalty

When given a chance, many workers from these groups show high drive and commitment. They care more about the job and stay with you longer. This helps reduce turnover and builds a stable team.

Access to Government Support Programs

Hiring from Work Opportunity Tax Credit groups may connect your business to other government aid or training programs. These can include free skill-building or wage subsidies.

The WTOC helps both employers and workers. It rewards companies for hiring those who need extra support while offering big tax savings.

If you want to reduce your tax burden and build a strong, inclusive team, the WOTC is the right tool. At Meru Accounting, we help you claim it with ease and accuracy. Our experts handle the forms, checks, and filing process from start to end. 

FAQ

1. Can I claim WOTC for part-time hires? 
   Yes, but they must work at least 120 hours in the first year.
2. How will I know if my employee qualifies?
   Use IRS Form 8850 and send it to your state. They will confirm eligibility.
3. Can I combine WOTC with other tax credits? 
   Yes, in many cases you can. Talk to a tax expert for full guidance.
4. How long does certification take? 
   It may take a few weeks to a few months, based on your state’s workload.
5. Are nonprofits eligible? 
   Yes, but only for veteran hires. The credit applies to payroll taxes.