The Work Opportunity Tax Credit: Eligibility, and how to claim

The Work Opportunity Tax Credit (WOTC) incentivizes employers to hire individuals from groups that traditionally face hiring challenges. Participating in the program can reduce your federal income tax liability and promote workplace diversity and inclusion, making it a highly useful tool.

In this article, we’ll explain who is eligible for the WOTC, how it is calculated, and what your business needs to do to claim it.

So let’s jump right in.

What is the Work Opportunity Tax Credit? 

The WOTC is a federal tax credit you can claim when you hire from groups of people who often face employment barriers. It is designed to encourage hiring from these targeted groups, and is built upon numerous affirmative action policies, such as the Rehabilitation Act of 1973.

It is also beneficial for employers. Co-managed by the Internal Revenue Service (IRS) and the Department of Labor (DoL), the program helps you to: 

• Reduce your taxes: You can claim the WOTC against your income taxes and reduce your tax liability. In the process, you’re providing opportunities for individuals who face employment challenges.
• Diversify your workforce: Participating in the WOTC program encourages you to consider candidates who may have otherwise been overlooked. A more diverse workforce means more individuals contributing different viewpoints and ideas, which can boost innovation and help your business grow.

The specific amount your company can claim depends on the target group you hire from (see below), and the number of hours they work. It's possible to claim up to $9,600 per qualified employee, resulting in the potential for significant tax savings for your company.

Note that the WOTC program is only available to employers in the US. If your company is based outside the US but you have employees there, you won’t be able to claim the credit.

When does the Work Opportunity Tax Credit end?

The WOTC program is not a permanent part of the tax code; rather, it is continually reauthorized and extended by Congress under the Consolidated Appropriations Act. It was last extended in 2020.

Note that Congress has not granted an extension beyond December 31, 2025. If Congress does not do so, you will no longer be able to claim the WOTC.

Who is eligible for the Work Opportunity Tax Credit?

As mentioned, the WOTC is designed to encourage the hiring of individuals who often face barriers to employment. As a result, the new hire must be part of an IRS-defined target group, each of which has its own eligibility criteria.

Here’s a breakdown of the WOTC target groups:

Veterans

In this context, qualified veterans are ex-military personnel who also meet at least one of the following conditions:

• They are a member of a family that has received Supplemental Nutrition Assistance Program (SNAP) benefits (i.e., food stamps) for at least three months in the 15 months before hire.
• They have been unemployed for a minimum of four consecutive weeks in the year before hire.
• They have been unemployed for at least six consecutive months in the year before hire.
• They are entitled to compensation for a service-connected disability that was incurred or aggravated during active military service.

Note that hiring veterans with a service-connected disability may make you eligible for higher maximum WOTC credits compared to other categories.

IV-A recipients

An IV-A recipient is a member of a family that has received Temporary Assistance for Needy Families (TANF) payments for any nine month period during the 18 months before their hire date. 

SNAP recipients 

SNAP offers food benefits to eligible low-income families. Qualified SNAP recipients must be between 18 and 40 years old, and a member of a family that has received SNAP benefits.

Designated Community Residents (DCRs)

A DCR is an individual who resides in either:

• An Empowerment Zone (EZ) or community that is eligible to receive tax incentives.
• A Rural Renewal County (RRC), or a county in a rural area that lost population from 1990 to 1994 or 1995 to 1999.
  
  

Vocational rehabilitation referrals

Vocational rehabilitation referrals are individuals with physical or mental disabilities. They must have been referred to you while receiving (or after completing) rehabilitation services approved by the state, completed under the Ticket to Work program, or carried out under the Department of Veterans Affairs. 

Supplemental Security Income (SSI) recipients

Qualified SSI recipients are individuals who receive SSI benefits (monthly payments made to people with disabilities and older adults with little or no income). 

Long-term family assistance recipients

Qualified long-term family assistance recipients are members of a family that have received TANF payments for 18 consecutive months prior to their hire date.

Long-term unemployment recipients

Long-term unemployment recipients are those who have been unemployed for 27 consecutive weeks and have received unemployment compensation during some or all of the time that they were unemployed.

Summer youth employees

Qualified summer youth employees reside in an EZ and are at least 16 years old but under 18 on their hiring date (or on May 1; whichever is later). They may only work for the employer between May 1 and September 15.

Ex-felons

Qualified ex-felons are individuals who are hired within a year of being released from prison (or of being convicted of a felony).

Note that each group has its own eligibility criteria, and some exclusions may apply. For example, even if someone is part of a target group, you may not be able to claim the tax credits if they’re a former employee. Dependents and certain relatives of an employer are also not eligible. 

See also: What other tax credits can your small business claim?

How is the Work Opportunity Tax Credit calculated?

As the employer, you can claim 40% of eligible wages per employee. However, the employee must be in their first year of employment, and must be certified by a local state workforce agency (SWA). 

You can claim 25% if the employee works at least 120 hours, but that percentage increases to 40% if they work at least 400 hours. The amount you can claim depends on the target group. 

In 2025, the maximum tax credit employers can claim for veterans is as follows:

Veterans receiving SNAP benefits: $2,400

Veterans entitled to compensation for service-connected disability:

• Hired one year after leaving service: $4,800
• Unemployed for at least six months: $9,600

Veterans who have been unemployed:

• For at least four weeks: $2,400
• For at least six months: $5,600

For other target groups, the maximum tax credits are as follows:

As a taxable employer, you can claim the WOTC against your federal income taxes. For tax-exempt employers (such as non-profits) that want to hire veterans, you must fill out Form 5884-C.

However, you can only claim against payroll taxes, and can only claim 26% (instead of 40%) of first-year wages to qualified veterans.

How do you claim the Work Opportunity Tax Credit?

To claim the WOTC, follow these steps:

1. Establish eligibility

The first step is to identify if your hire qualifies for the WOTC program. Start by reviewing the list of target groups you can hire from, and establish if they are part of one of those groups.

If you’re unsure, you can contact your local SWA or unemployment office for advice. See how Remote can help.

2. Fill out IRS Form 8850

Next, have the hire fill out part I of Form 8850, on or before their job offer date. 

This form is used to pre-screen the hire and officially request certification from the WOTC unit at the SWA, confirming that the hire is a member of a WOTC target group. You must also complete Part II after making the job offer.

3. Fill out ETA Form 9061

Once you’ve decided to hire the candidate, you must submit Form 8850 to your local SWA (not the IRS) within 28 calendar days of their start date, along with ETA Form 9061 (the Individual Characteristics Form). 

The employee will also need to fill out Form 9061 and provide any supporting documents, such as records of receiving SNAP or unemployment benefits. If an SWA has already pre-conditionally certified the job applicant, you can fill out and submit ETA Form 9062 instead.

The SWA will review the forms and confirm that the employee belongs to a target group. Hold onto this certificate, as you’ll need it to claim the tax credit.

If you’re hiring a qualified long-term unemployment recipient, you’ll also need to complete ETA Form 9175. And if you're a tax-exempt employer, don't forget that you also need to submit Form 5884-C.

4. Calculate the tax credit

Once you’ve received confirmation from your SWA that the employee qualifies, the next step is to calculate the WOTC. As mentioned, you can claim 25% of the employee’s first-year wages if they work at least 120 hours, or 40% if they work at least 400 hours.

For example, say you hire a qualified SNAP recipient, which is a target group with a maximum tax credit of $2,400. If the individual works 400 hours and earns $6,000 (400 x $15 per hour) during their first year of employment, you can claim the full credit ($2,400) when you file.

Remember that you can only claim the WOTC on qualified wages, which are wages subject to FICA (i.e., Social Security and Medicare) taxes. If you receive payment for the employee from a federally funded program, you won’t be able to claim the tax credit.

5. Claim the tax credit

Assuming you’ve met all the requirements, all that’s left is to use Form 5884 to fill in the total qualified first-year wages (or qualified second-year wages for long-term TANF recipients), and submit it with your federal tax return.

6. Maintain all documentation

If your company is participating in the WOTC program, store all forms and supporting documents for at least three years.

By maintaining thorough documentation, you demonstrate compliance with the program requirements and have evidence to support the claim if your company gets audited.

How can Remote help?

When you hire through Remote’s employer of record (EOR) service, we can help determine if your potential hire is eligible for the WOTC, and help you claim it. Our all-in-one global HR platform is designed to simplify all your HR needs, from onboarding and benefits to payroll and day-to-day HR management.

To learn more about how we can save you time, money, and resources, speak to one of our friendly experts today.