According to the U.S. Bureau of Labor Statistics, the unemployment rate has remained historically low, fluctuating between 4.0% and 4.3% from May to November 2024. In today's competitive hiring market, employers should be aware of the Work Opportunity Tax Credit (WOTC), a valuable incentive for hiring individuals from specific groups that face barriers to employment. This tax credit can be worth up to $2,400 per eligible employee, with even higher amounts available for certain veterans and long-term family assistance recipients. To take advantage of the WOTC, employees must begin work before January 1, 2026.
Pre-Screening Requirement
To qualify for the WOTC, employers must complete a pre-screening process. Both the employer and the job applicant must fill out Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the job offer date.
Who Qualifies?
Employers can claim the credit only for wages paid to employees from designated target groups, including:
IV-A recipients (families receiving Temporary Assistance for Needy Families, or TANF)
Qualified veterans
Qualified ex-felons
Designated community residents
Vocational rehabilitation referrals
Qualified summer youth employees
Members of families receiving Supplemental Nutrition Assistance Program (SNAP) benefits
Supplemental Security Income (SSI) recipients
Long-term family assistance recipients
Qualified long-term unemployed individuals
Key Eligibility Requirements
To claim the credit, employers must meet specific criteria. For example, each eligible employee must complete at least 120 hours of service within their first year of employment. The credit is not available for employees who are related to the employer or who have previously worked for the business.
The maximum credit varies depending on the employee’s category:
Up to $2,400 for most eligible employees
$4,000 for long-term family assistance recipients
$4,800, $5,600, or $9,600 for certain veterans
A 50% credit on up to $10,000 in second-year wages for long-term family assistance recipients, resulting in a maximum two-year credit of $9,000
For summer youth employees, wages must be earned between May 1 and September 15, with a maximum credit of $1,200 per employee.
A Win-Win Opportunity
While some employers may opt not to claim the WOTC due to specific restrictions, most businesses can benefit from this incentive. Not only does it provide valuable tax savings, but it also helps individuals facing employment challenges secure meaningful job opportunities. If you have questions about how the WOTC applies to your business, contact us for personalized guidance.