The Work Opportunity Tax Credit (WOTC) is a business credit jointly administered by the IRS and the Department of Labor (DOL). Employers can claim the WOTC if they hire individuals certified by a designated local agency as belonging to one of 10 targeted groups*.
The credit generally equals 40% of up to $6,000 in wages paid to qualifying individuals in their first year of employment, who perform at least 400 hours of service. For those who perform fewer than 400 but at least 120 hours, a 25% rate applies. The maximum credit is typically $2,400, but it can reach up to $9,600 for certain qualified veterans.
Employers cannot claim the WOTC for rehired employees. Taxable employers can carry unused credits back one year and forward 20 years. Both taxable and some tax-exempt employers in the U.S. and certain territories are eligible for the credit, applicable to wages paid to qualifying individuals starting work on or before December 31, 2025.
To learn more about how you can hire individuals who would qualify under the WOTC, contact your ShindelRock tax professional [1].
*Targeted groups are:
- the formerly incarcerated or those previously convicted of a felony;
- recipients of state assistance under part A of title IV of the Social Security Act (SSA);
- veterans;
- residents in areas designated as empowerment zones or rural renewal counties;
- individuals referred to an employer following completion of a rehabilitation plan or program;
- individuals whose families are recipients of supplemental nutrition assistance under the Food and Nutrition Act of 2008;
- recipients of supplemental security income benefits under title XVI of the SSA;
- individuals whose families are recipients of state assistance under part A of title IV of the SSA; and
- individuals experiencing long-term unemployment.