What Is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that rewards employers for hiring people from targeted groups who face significant barriers to employment, such as qualified summer youth employees, long-term unemployment recipients, veterans, and SNAP recipients. For most target groups, the credit equals 40% of the employee's first-year qualifying wages, up to a $6,000 wage base, if the employee works at least 400 hours — that's a maximum of $2,400 per qualifying hire. If the employee works between 120 and 399 hours, the credit drops to 25% of qualifying wages, or up to $1,500. Employees who work fewer than 120 hours don't generate any credit at all.
This calculator applies that formula to estimate your total credit based on how many people you hire and how many hours they work. To actually claim the credit, you need to have the new hire certified as a member of a targeted group by your state workforce agency, generally by submitting IRS Form 8850 within 28 days of the employee's start date, then claim the credit using Form 5884 when filing your business taxes. Some target groups, like certain veterans and long-term family assistance recipients, have different wage caps and credit rates, so check current IRS guidance for your specific hire.
Frequently Asked Questions
WOTC is a federal tax credit available to employers who hire individuals from certain targeted groups who have consistently faced barriers to employment, including qualified summer youth employees and long-term unemployment recipients.
The credit rate is 40% of qualifying wages if the employee works at least 400 hours, but only 25% if they work between 120 and 399 hours. Employees under 120 hours don't qualify.
You must first get the employee certified by your state workforce agency using IRS Form 8850, then claim the credit on Form 5884 with your business tax return.