Are you seeking ways to lower your tax bill while enhancing your workforce? The Work Opportunity Tax Credit (WOTC) is a powerful incentive that rewards businesses for hiring individuals who face barriers to employment, including veterans, long-term unemployed workers, and others in need of opportunities. By taking advantage of the WOTC, employers can unlock tax credits worth thousands of dollars per eligible new hire.
Currently, the program is set to expire at the end of 2025, but Congress may extend it. That means now is the perfect time to learn how this valuable credit works and how your business can benefit.
Who Qualifies for the WOTC?
Your business may be eligible for the WOTC when hiring individuals from these targeted groups:
- Veterans (including certain disabled or long-term unemployed veterans)
- Ex-felons re-entering the workforce
- Residents of designated communities
- Vocational rehabilitation referrals
- Summer youth employees
- SNAP (food stamp) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
- Qualified IV-A recipients (individuals certified as part of families receiving state assistance)
Hiring from these groups not only brings financial benefits—it also helps you build a diverse and motivated team.
How Much Is the WOTC Worth?
The Work Opportunity Tax Credit ranges from $2,400 to $9,600 per employee, depending on the individual’s target group and wages.
- If an employee works 400 or more hours in their first year, you can claim 40% of the qualified wages as a tax credit.
- If they work between 120 and 399 hours, you can claim 25% of qualified wages.
Wage Limits
- For most employees, the maximum wage amount eligible for the credit is $6,000.
- For specific categories of veterans, the limit increases to $24,000, resulting in a credit of up to $9,600.
Example:
John owns Smith Hardware and hires Steve, a qualified veteran, in July 2025. Steve works over 400 hours and earns $20,000. Because of his veteran status, $18,000 of Steve’s wages qualify for the credit. John claims a WOTC of $7,200 (40% of $18,000).
What Employers Need to Do
To take advantage of the credit, employers must pre-screen new hires and obtain certification that they qualify for one of the targeted groups. This requires filing IRS Form 8850 on or before the date a job offer is made. Your state’s workforce agency handles certification.
Limitations to Keep in Mind
Certain wages don’t qualify for the credit. For example, the WOTC cannot be claimed if:
- The employee works fewer than 120 hours per week.
- The employee has worked for you previously.
- The employee is your dependent or family member.
- Less than 50% of their wages come from your trade or business.
Why Partner with a CPA?
While the WOTC can provide significant tax savings, the process involves strict documentation and certification requirements. Working with an experienced CPA or tax advisor can make the process smoother by:
- Ensuring employees are appropriately certified.
- Filing all required forms on time.
- Maximizing your eligible tax credit.
At the end of the day, the WOTC helps businesses reduce tax liability while making a positive impact in the community, a win-win for your company and your team.
If you have any questions about these topics or others, please get in touch with one of our experts.
At Vrakas CPAs + Advisors, we strive to alleviate financial worry for business owners, allowing them to focus on running their businesses, serving their customers, and staying ahead of the competition.