What the Work Opportunity Tax Credit does

The Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces the amount of income tax a business owes when it hires someone from a group the government wants to encourage into employment. The credit is not a deduction — it directly lowers your tax bill dollar for dollar, up to a maximum amount that depends on which group the new hire belongs to and how long they work for you.

You claim the credit on your business tax return, not on a personal return. The IRS requires you to obtain a certification from your state's workforce agency before you can claim it, and you must do this within a specific window after the hire date. If you miss the important date, you lose the credit entirely.

Key Takeaways

  • The Work Opportunity Tax Credit is claimed by the employer (the business that does the hiring), not by the employee, and it reduces the business's federal income tax liability.
  • You must request a certification from your state workforce agency within 28 calendar days of the employee's first day of work, or you cannot claim the credit.
  • The credit amount ranges from $1,200 to $9,600 per employee depending on which target group they belong to and how long they remain employed.
  • The employee must work at least 120 hours in the first year (or 400 hours for some groups) for you to claim any credit at all.
  • Common target groups include people receiving certain government benefits, veterans, ex-felons, and people with disabilities, but the list changes and varies by state.

Which groups of workers may have access to for the credit

The IRS maintains a list of target groups whose employment triggers the credit. These groups are designed to help people who face barriers to employment. The most common ones are: individuals receiving Supplemental Nutrition information Program (SNAP) benefits, Temporary information for Needy Families (TANF) recipients, people with disabilities, ex-felons, veterans (including those receiving Unemployment Insurance for Veterans), and long-term unemployment recipients.

Other groups exist but are less common. These include recipients of Supplemental Security Income (SSI), recipients of state or local general information, residents of Empowerment Zones or Rural Renewal Areas, and people age 40 or older who are receiving long-term family information. The exact list and definitions change year to year, and some groups are only available in certain states or during certain periods.

The person you hire must be a member of one of these groups at the time you hire them. You cannot retroactively claim the credit if someone later becomes may be able to access for a benefit. Your state workforce agency will verify membership in the target group as part of the certification process.

How to request certification from your state workforce agency

You must submit Form IRS 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) to your state's designated workforce agency within 28 calendar days of the employee's first day of work. This is a hard important date. If you submit it on day 29, you cannot claim the credit.

You do not send Form 8850 to the IRS. You send it to your state workforce agency — the specific office varies by state. Some states accept the form by mail, some by fax, some through an online portal, and some through a combination. Contact your state's workforce agency directly to learn which method they use and where to send it. You can find your state agency through the U.S. Department of Labor's website or by calling your state's labor department.

The form asks for basic information: the employee's name, Social Security number, hire date, job title, and which target group they belong to. You will also need to provide the employee's documentation of membership in that group — for example, a SNAP benefits letter, a disability information letter, or a discharge paper from the military. The employee must sign the form authorizing the workforce agency to verify their status.

The state workforce agency will review the form and either certify or deny the request. Certification does not mean the credit is automatic — it means the employee meets the criteria. You still must meet the work-hour requirement and claim the credit correctly on your tax return.

Work-hour requirements and credit amounts

The amount of credit you can claim depends on how long the employee works for you and which target group they belong to. For most groups, the employee must work at least 120 hours in the first 12 months for you to claim any credit. For some groups — including long-term unemployment recipients and recipients of state or local general information — the requirement is 400 hours.

If the employee works 120 to 399 hours (for the 120-hour groups), the credit is typically $1,200 per employee. If they work 400 or more hours, the credit is typically $2,400 per employee. For certain groups like disabled workers and ex-felons, the credit can be as high as $9,600 if the employee works 400 or more hours in the first year and continues working into the second year.

The hours are counted from the first day of work through the end of the 12-month period following hire. You do not need to track every hour — your payroll records and timesheets are sufficient proof. If the employee is laid off or quits before reaching the hour threshold, you cannot claim any credit for that employee.

Where to claim the credit on your tax return

You claim the Work Opportunity Tax Credit on Form 8884 (Work Opportunity Credit), which you attach to your business tax return. The form walks you through calculating the credit based on the number of employees, their target group, and hours worked. You will need the state certification letter from your workforce agency to complete the form.

If you are a sole proprietor, you claim the credit on your Form 1040 Schedule C (Profit or Loss from Business). If you operate as an S corporation, partnership, or C corporation, each entity type has its own rules for how the credit flows through to owners. The instructions to Form 8884 explain the rules for your business structure.

You must file Form 8884 with your tax return for the year in which the employee was hired and worked the required hours. You cannot amend a prior return to claim the credit if you missed the important date to request state certification.

Common mistakes that cost you the credit

The most expensive mistake is missing the 28-day certification important date. Many employers do not know about this requirement and discover it only when preparing their tax return months later. By then, it is too late. The IRS will not grant an extension, and you lose the entire credit.

The second mistake is hiring someone you believe is in a target group without verifying it through the state certification process. You cannot self-certify. Even if the employee tells you they receive SNAP or are a veteran, you must have the state workforce agency confirm it in writing.

A third mistake is claiming the credit for an employee who did not work the required hours. If someone works 100 hours and then leaves, you have no credit to claim. Verify hours worked before you file your return.

A fourth mistake is claiming the credit twice — once on a federal return and again on a state return, or claiming it in multiple years for the same employee. The credit is one-time per employee. Once you claim it for a hire, you cannot claim it again for that person.

State variations and additional state credits

Some states offer their own work opportunity credits on top of the federal credit. These are separate from the federal WOTC and have their own rules, important date, and forms. A few states do not participate in the federal program at all or have suspended it temporarily.

Your state's workforce agency can tell you whether a state credit exists and what the requirements are. Do not assume that federal certification automatically qualifies you for a state credit — you may need to file a separate form or meet different criteria. Check with your state's tax department or workforce agency for details.

Frequently Asked Questions

Can I claim the credit if I hire someone who is receiving unemployment benefits?

Only if they are receiving Unemployment Insurance for Veterans (a specific program for military veterans). General unemployment benefits do not make someone may be able to access for the Work Opportunity Tax Credit. The target groups are defined narrowly, and unemployment alone is not one of them.

What happens if the state workforce agency denies my certification request?

If the agency denies certification, you cannot claim the credit for that employee. You can request reconsideration if you believe the denial was in error, but you must do so within the timeframe your state allows. Contact the workforce agency to learn the appeal process.

Do I have to tell the employee I am claiming this credit?

No. The credit is a business tax benefit and does not affect the employee's taxes or benefits. The employee must sign the certification form authorizing the workforce agency to verify their status, but they do not need to know the credit exists or how much it is worth.

Can I claim the credit if I hire someone who was previously employed by my company?

No. The credit applies only to new hires. If someone worked for you before, left, and returns, they are not a new hire and the credit does not explore, even if they were in a target group when first hired.

What if I submit the certification form late by accident?

You lose the credit. The IRS does not grant extensions for the 28-day important date. There is no exception for good cause or honest mistakes. If you miss the important date, you cannot claim the credit for that employee in any year.