Guide to the Work Opportunity Tax Credit (WOTC)

Every business wants to keep as much profit in their pocket as possible. One strategy to do this is to take advantage of the Work Opportunity Tax Credit, or WOTC. This federal tax credit can be a highly effective hiring strategy that allows you to save money while sourcing talent for your organization.

Continue reading this HR Guide to WOTC to learn more about the tax credit and our WOTC tips to integrate it into your hiring practices.

What is the Work Opportunity Tax Credit?

The WOTC is a federal tax credit designed to encourage businesses to hire individuals from targeted groups who have traditionally faced significant barriers to employment. This program, authorized by Congress, has been instrumental in helping job seekers gain employment while supporting businesses with valuable tax savings.

Who is Eligible for WOTC?

Employers can claim the WOTC for hiring individuals from the following groups:

• Veterans, particularly those with service-related disabilities or long periods of unemployment.

• Recipients of Temporary Assistance for Needy Families (TANF).

• Supplemental Nutrition Assistance Program (SNAP) recipients.

• Long-term unemployed individuals.

• Individuals with felony convictions.

• Residents of designated empowerment zones or rural renewal counties.

For a complete list of eligible groups, refer to the Department of Labor’s resources.

WOTC Tax Credit Amount

The actual WOTC amount you receive from each employee is equal to 25% to 40% of the employee’s wages. Also, the employee must work for a minimum of 120 hours (the equivalent of 3 full-time weeks) in order to receive any portion of the tax credit. Here’s a brief breakdown of maximum credit amounts:

The actual percentage is calculated based on the number of hours the employee works. For example, employers can receive a tax credit of 25% of the employee’s wages if they work at least 120 hours. That percentage increases to 40% if the employee works at least 400 hours. The main goal is to encourage businesses to hire and retain those who may struggle to gain employment. The more they’re allowed to work, the bigger the tax credit.

WOTC Forms and Paperwork for HR

To receive all tax credits your business is eligible for, you will need to furnish the proper forms and paperwork to the IRS. Applying for the WOTC involves several steps. Here’s a breakdown of the process:

Step 1: Pre-screening Applicants

Before hiring, ask candidates to complete IRS Form 8850 (Pre-Screening Notice and Certification Request) and ETA Form 9061 (Individual Characteristics Form).

On the first day of your new hire’s employment, HR managers should fill out Page 2 of Form 8850, along with an ETA Form 9061 or 9062. These forms must be completed and submitted to the IRS within 28 days of your new hire’s start date. 

For questions about filling out Form 8850, the IRS offers an instructional guide to ensure forms are filled out correctly and submitted in a timely manner. Otherwise, simple mistakes may affect your tax credit eligibility.

Step 2: Submitting Forms

Submit the completed forms to your state workforce agency (SWA) within 28 days of the employee’s start date. This is a critical deadline; late submissions may result in ineligibility.

Step 3: Certification

The SWA will review the forms and determine whether the employee qualifies for the WOTC. Once certified, you can claim the credit on your business tax return.

WOTC Tips: Count Every Credit!

WOTC is a win-win for employers in two ways: First, they are able to fill vacancies with qualified talent. And second, they lower their tax obligations in the process. And if you need a third reason, it also provides a much-appreciated work opportunity to someone in need. 

Here are some of our top WOTC tips to maximize participation and increase your tax credit:

1. Explain the Role of WOTC

Filling out WOTC eligibility forms is optional for employees. However, keep in mind that many non-HR employees won’t understand what the WOTC program is or why they should participate. Explain that while participation is optional, it can provide great value to the company and ultimately to the organization’s workforce.

2. Make Form 8850 a Standard in Your Hiring and Onboarding

If your hiring system doesn’t already include WOTC forms and questions, consider ways to integrate these tools into the process. Make it part of your new hire paperwork so that you never miss an opportunity to increase your tax credit. Also, this ensures that all employees receive the form so that discrimination is never an issue.

3. Build Processes Around WOTC Collection and Submission

Claiming your company’s work opportunity tax credits is not a one-and-done deal. There are multiple steps involved with each eligible employee, including reviewing the answers on Form 8850, submitting your own forms in a timely manner, and tracking employee hours and wages. Missing just one of these crucial steps can disqualify you from the tax credit.

When you build processes around WOTC, you are less likely to skip important information and maximize your tax credit. HR tools like GoCo can automate and simplify many of the WOTC intricacies and supply you with all the paperwork and validation you need to claim your tax credits. 

Updated 1/5/2025