Hiring new talent is an investment — one that can stretch your budget quickly. The Work Opportunity Tax Credit (WOTC) offers employers the opportunity to maximize hiring budgets while positively impacting the lives of those who may have otherwise faced employment challenges.
Note: The Work Opportunity Tax Credit is currently authorized through Dec. 31, 2025. While Congress has extended the program multiple times, its continuation beyond that date will depend on future legislation.
What is the Work Opportunity Tax Credit?
The WOTC is a federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. WOTC-qualified employees may include:
- Temporary Assistance for Needy Families (TANF) recipients
- Veterans
- Ex-felons
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term unemployment recipient
- Designated community and empowerment zone residents
- Vocational rehabilitation referrals
- Qualified summer youth
How Much is the Work Opportunity Tax Credit?
While most target groups have a maximum credit of $2,400 per eligible new hire, some exceptions exist. For example, hiring qualified veterans could result in a credit of up to $9,600 per eligible new hire. Employers can estimate their annual tax credit using a WOTC calculator.
How to Claim WOTC
Employers can claim the WOTC for wages paid to eligible individuals during their first year of employment, if they worked at least 120 hours for the employer during that first year. The credit is calculated as follows:
- 25% of the wages paid to an employee who worked between 120 and 400 hours; or
- 40% of the wages paid to an employee who worked more than 400 hours.
To claim the WOTC, employers must submit Form 8850 with the state workforce agency within 28 days of the hire date of the eligible employee. Other documentation may be needed for tax filings. All businesses receiving the credit (taxable and tax-exempt employers) must provide all required documentation to the appropriate agencies.
For taxable businesses, the credit is limited to the amount of business income tax liability, with normal carry-back and carry-forward rules applying. For qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid during the period in which the credit is claimed.
Benefits of the Work Opportunity Tax Credit
The WOTC is beneficial for both employers and employees. Employers can claim the WOTC to reduce their federal income tax liability (or, for qualified tax-exempt organizations, their employer Social Security tax). At the same time, qualified employees gain access to job opportunities that may have otherwise been out of reach.
Ultimately, the WOTC enables businesses to positively impact their community while seeing financial benefits in return.
Tap Into WOTC Benefits With CBIZ
Through the Work Opportunity Tax Credit, employers can lower their tax burden and gain access to valuable talent from underrepresented groups. To streamline the process of determining eligibility for and claiming the WOTC, consider partnering with a team of qualified professionals.
At CBIZ, we help businesses seamlessly tap into WOTC benefits. Use our WOTC calculator to estimate your savings, or connect with our specialists today to learn more.
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