Can You Take Advantage of WOTC?

What exactly is the WOTC? How do you know if your business can take advantage of it? We’re here to help you understand it and have put together a list of the items to help you see if you’re eligible. 

What is the WOTC? 

WOTC is short for Work Opportunity Tax Credit. It’s a federal tax credit available to private-sector employers for hiring individuals from any of 10 target groups who’ve consistently faced significant barriers to employment.

The WOTC equals 40% of up to $6,000 of wages paid or incurred, with a maximum credit of $2,400. It only applies for an employee who:

• Is in their first year of employment
• Is certified as being a member of one of the 10 eligible groups
• Works a minimum of 400 hours of services for that employer

This is a one-time credit for each new hire; an employer cannot claim the credit for rehired employees. The IRA will prorate: A 25% rate applies to wages for individuals with between 120 and 399 hours of service. Employers may consider up to $24,000 in wages in determining WOTC for certain qualified-veteran-targeted groups. 

Is your business eligible? 

Businesses of any size can qualify for the WOTC when hiring individuals from eligible groups who regularly face significant obstacles to employment. 

Taxable and certain tax-exempt employers in the U.S. and some U.S. territories are eligible to claim this credit. Here are the ins and outs:

• A taxable employer can claim the credit against income taxes.
• If an employer is eligible but tax-exempt, they can claim the credit only against payroll taxes and only for wages paid to members of the qualified-veteran-targeted group.  

The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.

Here are the steps for filing:

1. Employers and job applicants must complete the following:
   1. Form 8850 
   2. Pre-Screening Notice 
   3. Certification Request 
2. Once these are completed, the employer must submit them to the proper State Workforce Agency within 28 days of the employee’s start date. Employers should not submit Form 8850 to the IRS.
3. After the employee receives certification that they’re a member of one of the 10 targeted groups, the credit is figured on Form 5884, Work Opportunity Credit. The credit is then claimed on Form 3800, General Business Credit. (Note: Tax-exempt employers file Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.)

The credit is limited to the amount of business income tax liability or the employer’s share of Social Security tax owed. Generally, taxable employers may carry the current year’s unused WOTC back one year and then forward up to 20 years.

Determining eligibility can get complicated, so we recommend you seek out a tax professional or advice from a certified HR professional. Don’t have easy access to a pro right now? Check out our HR Outsourcing options to get your questions answered!