Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) is a federal tax incentive for businesses that hire people from targeted groups who have faced significant barriers to employment.

What types of employees qualify for the Work Opportunity Tax Credit?

The targeted groups include veterans, ex-felons hired within one year of conviction or release, long-term unemployed job seekers, and individuals receiving government assistance or completing rehab programs. The group also includes summer youth employees aged 16-17 from high-poverty areas.

How can businesses apply for the Work Opportunity Tax Credit to reduce taxes?

Businesses must check the requirements with the IRS and their state. In most cases, employers can complete Form 8850 with the new hire on or before the job offer date, and send it to their local agency within 28 days of the employee’s start date. Once they receive the certification that the employee is a targeted group member, employers can file Form 5884. The amount depends on the target group and qualified wages for hours worked.

How can a business maximize its savings through the Work Opportunity Tax Credit?

To maximize WOTC savings, businesses can incorporate pre-employment screening processes into their hiring workflow. They can train HR teams to identify eligible candidates early. Partnering with payroll solution providers who understand WOTC requirements can streamline the process. Proper record-keeping throughout the application process supports successful credit claims and compliance.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.