Considering current hiring challenges, business owners should take advantage of the Work Opportunity Tax Credit (WOTC). This credit is available to employers who hire workers from specific targeted groups that face significant employment barriers.
The tax credit can be worth up to $2,400 per eligible employee, with higher amounts available for certain veterans and recipients of long-term family assistance.
The U.S. Bureau of Labor Statistics reports that the unemployment rate remained historically low, ranging from 4.0% to 4.3% between May and November 2024.
To qualify for the WOTC, employers must complete a pre-screening process. Both the job applicant and employer must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day a job offer is made. It applies to eligible employees who begin working before January 1, 2026.
The targeted groups
An employer is eligible for the credit only for qualified wages paid to a member of a targeted group. These groups are:
- Qualified IV-A recipients who are members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
- Qualified veterans,
- Qualified ex-felons,
- Designated community residents,
- Vocational rehabilitation referrals,
- Qualified summer youth employees,
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP),
- Qualified Supplemental Security Income recipients,
- Long-term family assistance recipients, and
- Qualified long-term unemployed individuals.
Details to qualify
To qualify for the credit, there are a number of requirements. For example, each employee must have completed at least 120 hours of service in their first year of service for the employer. Also, the credit isn’t available for certain employees who are related to or who previously worked for the employer.
There are different rules and credit amounts for certain employees. The maximum credit available for first-year wages is generally $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit over two years of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum credit available for summer youth employees is $1,200 per employee.
A win for you and your employees
In some cases, employers may elect not to claim the WOTC. In limited circumstances, the rules may prohibit the credit or require allocating it. However, the credit can be advantageous for most employers hiring from targeted groups — and it can result in jobs for those who need them. Contact us with questions or for more information about your situation.
We Can Help
If you have any questions about the Work Opportunity Tax Credit, or would like to discuss individual tax planning strategies that apply to your situation, do not hesitate to contact your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Alyssa Monson, Staff Accountant and James Ray, CPA.
If you would like to discuss your particular situation, contact Alyssa or James at 859-331-1717.
As part of Rudler, PSC's commitment to true proactive client partnerships, we have encouraged our professionals to specialize in their areas of interest, providing clients with specialized knowledge and strategic relationships. Be sure to receive future Rudler Reviews for advice from our experts, sign up today !