New Hires, New Tax Credit: How Much Could You Claim?
The Work Opportunity Tax Credit (WOTC) is a federal incentive designed to encourage employers to hire people who often face extra barriers to finding work — long-term unemployed workers, veterans, SNAP and TANF recipients, ex-felons, and summer youth employees, among others. The credit is calculated as a percentage of the qualifying wages you pay each eligible hire in their first year: 25% if they work at least 120 hours, or 40% if they work 400 hours or more, up to a wage cap that depends on which target group they belong to. Most groups cap out around $6,000 in qualifying wages (up to $2,400 in credit), while certain long-term unemployed veterans have a cap as high as $24,000 (up to $9,600 in credit). This calculator takes your hire count, target group, hours worked, and first-year wages, and instantly estimates your total credit.
Because different target groups carry very different wage caps and maximum credits, hiring from a group like long-term unemployed veterans can be worth several times more per person than a general target group hire — worth factoring into recruiting decisions if you're already considering candidates from these backgrounds. Remember that WOTC requires certification: you must submit IRS Form 8850 to your state workforce agency within 28 days of the hire's start date, so build that paperwork into your onboarding checklist from day one.
Frequently Asked Questions
It's a federal tax credit that rewards employers for hiring people from certain target groups who often face barriers to employment, such as long-term unemployed workers, veterans, and SNAP or TANF recipients. It's claimed as a general business credit, not paid out as cash.
If a new hire works at least 120 hours but fewer than 400 hours in their first year, you can claim 25% of qualifying wages. If they work 400 hours or more, the rate rises to 40%. Under 120 hours doesn't qualify at all.
You must file IRS Form 8850 with your state workforce agency within 28 days of the employee's start date to pre-screen and certify their target group status. Without certification, you can't claim the credit.
※ Actual eligibility and credit amounts depend on IRS rules and certification. This is an estimate for reference only — consult a tax professional.