Work Opportunity Tax Credit: The Basics for Employers

What is the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) rewards employers who hire individuals that typically face some type of barrier to employment. Upon hiring an individual from a minority group, you can earn anywhere between $1,200 to $9,600 per year. The amount of money that a business can claim per employee varies on which group that individual falls under.
The Work Opportunity Tax Credit allows you (an employer) to create good, stable jobs for eligible workers which leads to valuable job experience for employees. It’s a win-win situation. You can provide job stability and experience which can help an individual become self-sufficient while maximizing your tax credit benefits for building an inclusive and diverse work environment where employees can thrive.
The program’s benefits are available to businesses that hire and retain eligible individuals from any of the 10 target groups, such as those who have been unemployed for an extended period, those with a criminal background, and military veterans.
Before you can claim the Work Opportunity Tax Credit, you must get certification that your employee is in one of the ten groups. Taxable businesses claim WOTC as a general business tax credit against their income taxes and tax-exempt businesses claim the credit against their payroll taxes. Employers have until December 31, 2025, to file.
An employer must file for the tax credit within 28 days of hiring the individual in one of the groups. Using a questionnaire can be an easy way to find out if an employer is a part of any of those groups.

The History Behind the Work Opportunity Tax Credit

The Work Opportunity Tax Credit was first introduced in 1996 as part of the Small Business Job Protection Act. Since its rollout in 1996, it has been reauthorized several times by Congress.
The goal behind the program was to incentivize businesses to hire and retain employees who had previously had difficulty finding or keeping employment due to certain circumstances.
Businesses that hire eligible individuals that fall under any of the 10 categories receive a tax credit that subsidizes and offsets the cost of hiring and employing that individual. The motivation behind the program was not just to get these individuals who face employment difficulties to start earning wages, but also to help them rebuild their long-term employability, economic status, and quality of life.
Who is eligible for the Work Opportunity Tax Credit?
If you have hired eligible individuals from any of the following groups, you might be able to receive a credit worth up to $9,600:
  • Qualified Ex-Felons, Paroled or Work Release Individuals who have been released in the past 12 months
  • Qualified Veterans – individuals who have served over 180 days or were discharged early due to a service-related disability
  • Vocational Rehabilitation Referrals – individuals with a physical/mental disability
  • Qualified Summer Youths
  • Designated Community Member – individuals aged 18 through 39 that reside in an Empowerment Zone, Renewal Community, or Rural Renewal County
  • A member of a family that is a Qualified Food Stamp Recipient
  • A member of a family that is a Qualified Supplemental Nutrition Assistance Program (SNAP) recipient
  • Qualified Supplemental Security Income (SSI) recipients
  • Qualified Long Term Unemployment recipients
  • A member of a family that is a Qualified Temporary Assistance for Needy Families (TANF) recipient
  • A member of a family that is a qualified Long Term Temporary Assistance for Needy Families (TANF) recipient.
To be eligible, employees must be in their first year of hire. You will not qualify if the individual you hired is a relative, an individual that was rehired, or someone who owns a large portion of the company. Employees must meet the minimum hours worked requirement which is 120-400 hours. In the first-year period for employees that worked 120-400 hours, credit is 25% of these first-year wages. Employees that worked 400 hours or more can be credited 40% of first-year wages
Each of these groups has eligible individuals with an underutilized skill set that is a very valuable asset to businesses, especially with the recent labor shortages across the country in mind. WOTC serves as a voice for those who are typically unrepresented and forgotten about. Participation in this program is a reminder to employers that these individuals are willing and able to work.

How to take advantage of the Work Opportunity Tax Credit

Businesses around the country are creating new job opportunities and searching for eager workers to fill their vacant roles. Taking part in this program is a great way to show that you are dedicated to inclusive hiring practices and connecting individuals to stable jobs. It is important to invest in a great opportunity for both your business and the eligible employees looking to rebuild their lives and start a new chapter. Many of the individuals in these specific groups have had difficulties with employment and are eager to get back to work and contribute to their families and communities in a positive way and you can help them get there by reaching out to us to get started.
At Stetson Tamaddon, our team of experienced specialists is dedicated to helping you while you help others. Our unique compliance-driven technology will help you go through the process with as little stress as possible. Our goal is to ensure that you receive the maximum return with minimum hassles. Don’t leave any unclaimed money on the table. Get in touch with one of our specialists today to find out how to get started.