The Work Opportunity Tax Credit (WOTC) is a federal incentive designed to encourage businesses to hire individuals from specific “target groups” who often face challenges entering or re-entering the workforce. Administered jointly by the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL), the program requires employers to pre-screen candidates and obtain certification from a State Workforce Agency (SWA) confirming that the new hire belongs to one of the qualified groups.
Once certified, eligible employers may claim the credit against their federal tax liability. The WOTC has been extended through December 31, 2025, making it an ongoing opportunity for businesses to reduce taxes while expanding hiring opportunities for underrepresented individuals.
The Work Opportunity Tax Credit (WOTC) is designed to encourage businesses to hire people from groups that often face barriers to employment. Here are some of the key groups that may qualify:
- Veterans: This includes veterans who have recently left active duty, those who are unemployed for specific periods, and veterans with service-connected disabilities. Employers may receive a higher credit when hiring veterans who have faced long-term unemployment or who are disabled.
- Ex-Felons: Individuals who have been convicted of a felony and are hired within one year of their conviction or release from prison may qualify. This encourages second-chance hiring and supports reintegration into the workforce.
- Individuals Receiving SNAP (Food Stamps): People who are part of households receiving Supplemental Nutrition Assistance Program (SNAP) benefits, especially younger adults, may qualify employers for the credit.
- Recipients of Temporary Assistance for Needy Families (TANF): TANF provides cash assistance to low-income families. Hiring someone who is a current or recent recipient of TANF benefits may make an employer eligible for WOTC.
- Designated Community Residents: Individuals who live in specific economically distressed areas known as Empowerment Zones or Rural Renewal Counties qualify. These residents often have limited access to jobs due to geographic or economic challenges.
- Summer Youth Employees: Young people (ages 16–17) who are hired for summer jobs and live in Empowerment Zones may qualify. This encourages youth employment and workforce entry in underserved areas.
- Long-Term Unemployment Recipients: Workers who have been unemployed for 27 weeks or more and who have received unemployment benefits during that period are also eligible. This helps employers connect with individuals who have struggled to re-enter the workforce.
- Vocational Rehabilitation Referrals: Individuals with physical or mental disabilities who have been referred to an employer by a state-approved vocational rehabilitation program, the U.S. Department of Veterans Affairs, or a related agency. This supports employment opportunities for people with disabilities.
Why WOTC Matters for Businesses
The Work Opportunity Tax Credit offers numerous benefits for businesses, including:
- Immediate tax savings: It lowers your federal tax liability dollar for dollar (not just a deduction).
- Encourages hiring from underserved groups: It aligns with diversity, equity, and inclusion priorities.
- No limit on number of eligible hires: You can apply it to multiple new employees (as long as they meet the criteria).
- Cash flow boost: Especially for small businesses, a $2,400 credit per hire can ease tax burdens and free resources for growth.
- Flexibility: Unused credits can typically be carried forward (and sometimes back) under general business credit rules
The Work Opportunity Tax Credit offers a powerful tool for businesses to reduce tax burdens while contributing positively to workforce inclusion. But success depends on timing, documentation, and awareness. If your business hasn’t taken advantage of this credit yet, now might be the right moment to start exploring it.
Employees Not Eligible Under the WOTC Program
The Work Opportunity Tax Credit (WOTC) cannot be claimed for certain employees, including close relatives or dependents of the employer (such as a spouse, children, or parents), individuals who own more than 50% of the business, former employees who are simply being rehired, and most government employees (with the exception of certain veterans). In addition, the credit is only available when new hires are properly pre-screened and certified by a State Workforce Agency (SWA); if certification is not obtained, the wages paid to that worker are not eligible for the credit.
