Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax credit on wages you pay to new hires certified as members of a targeted group.
- LAW
- 26 U.S.C. §51
- LIMIT
- Generally $2,400 per employee; some groups allow more
- DEADLINE
- Generally, Form 8850 within 28 days after pre-2026 start
- WATCH FOR
- Sending Form 8850 without the required ETA forms
A state workforce agency must certify each employee as a member of one of 10 targeted groups, such as qualified veterans, qualified ex-felons, and qualified Supplemental Nutrition Assistance Program (SNAP) recipients. The maximum credit is generally $2,400 per employee; some groups allow more. Generally, you complete Form 8850 on or before the day you offer the job, then claim the credit after the agency certifies the employee. Current law covers only employees who begin work for you on or before December 31, 2025.
How much is the WOTC worth?
The WOTC is generally 40% of up to $6,000 of first-year wages for an employee who works at least 400 hours for you. For 120 to 399 hours, the rate is 25%; under 120 hours, no credit applies. First-year wages generally cover the year from the employee’s first day of work and are generally FUTAFUTA. FUTA is the federal unemployment tax you pay on the first $7,000 of each employee’s wages a year, with nothing withheld from pay.Click to open the term wages, counted without the FUTA wage cap. Qualified tax-exempt employers can claim it only for qualified veterans, against their share of Social Security tax, under separate rules.
| EMPLOYEE CERTIFIED AS | WAGES COUNTED | MOST CREDIT, 400+ HOURS, TAXABLE EMPLOYER |
|---|---|---|
| Most targeted groups | $6,000 | $2,400 |
| Qualified summer youth employee | $3,000, for any 90-day period between May 1 and September 15 | $1,200 |
| Qualified veteran | $6,000, $12,000, $14,000, or $24,000, by veteran category | $2,400 to $9,600 |
| Long-term family assistance recipient | $10,000 a year, for 2 years | $4,000 in year one, $5,000 in year two (50%) |
How do you claim the WOTC?
These steps apply only to employees who began work on or before December 31, 2025; for a December 31, 2025 start, the 28th day was January 28, 2026. The credit depends on certification from the state workforce agency of the state where your business is located (where the employee works). You qualify either with that certification in hand by the employee’s first day of work, or by following steps 1 to 3.
- 01
Complete Form 8850 by the job offer. You and the applicant complete it on or before the day you offer the job.
- 02
Submit Form 8850 with ETA Form 9061 or 9062 (plus ETA Form 9175 for a long-term unemployment recipient) to the state workforce agency within 28 calendar days after the employee’s start date, signed by you and the employee.
- 03
Receive the certification before you claim the credit.
- 04
Track hours and qualifying wages: at least 120 hours for any credit, 400 for the 40% rate; long-term family assistance recipients also earn credit on second-year wages.
- 05
Claim the credit. A taxable employer files Form 5884 and claims it on Form 3800 against income tax; a qualified tax-exempt employer that hires a qualified veteran files Form 5884-C.
Which employees never qualify for the WOTC?
Related individuals and rehires never qualify; nor, for a tax year, do employees not paid mostly for your trade or business. Section 152(d)(2)(A)-(G) relatives are: a child (including a stepchild, eligible foster child, or adopted child) or descendant; a sibling or step-sibling; a parent, stepparent, or ancestor; a sibling’s child; a parent’s sibling; and a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Household dependents are section 152(d)(2)(H) dependents the named person can claim: household members all tax year, not their spouse that year. Section 267(c) attribution applies to ownership.
| YOUR BUSINESS | WHO NEVER QUALIFIES |
|---|---|
| You, as an individual (sole proprietor) | Your relatives and household dependents |
| A corporation | Relatives and household dependents of anyone owning more than 50% of the stock by value |
| A partnership or other non-corporate entity | Relatives of anyone owning more than 50% of the capital and profits interests |
| An estate or trust | Its grantors, beneficiaries, and fiduciaries, and their relatives and household dependents |
| Any employer | Anyone you employed before the hiring date, and, for a tax year, anyone for whom 50% or less of your pay is for work in your trade or business |
Can you claim the WOTC for employees who start work in 2026?
Current law covers only employees who begin work for you on or before December 31, 2025. The statute excludes wages paid to anyone who begins work after that date. Congress has extended the end date before, most recently in December 2020, when it replaced December 31, 2020 with December 31, 2025. If a lapsed credit is extended retroactively, the IRS may allow more time to submit Form 8850 for employees who began work while it was expired or for a reasonable time after it was extended.
Frequently asked
- 26 U.S. Code § 51 - Amount of credit
- 26 U.S. Code § 152 - Dependent defined
- Work Opportunity Tax Credit
- Instructions for Form 8850 (03/2021)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.