Fact Sheet 79 - Work Opportunity Tax Credit
The Work Opportunity Tax Credit is a federal credit available to private-for-profit employers who hire from targeted groups who have consistently faced barriers to employment.
Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit. For taxable employers, WOTC can be claimed as a general business credit against an employer’s income taxes. Tax exempt employers can claim the WOTC against their payroll taxes. Employers of all sizes are eligible to claim the WOTC. The amount of the tax credit depends on the number of hours worked in the first year. If an employee works 120-399 hours, the employer qualifies for a 25 percent tax credit of first year wages. The tax credit increases to 40 percent if the employee works 400 hours or more. The tax credit ranges from $2,400 to $9,600 per employee for the first year.
Employers can hire eligible employees from the following target groups for WOTC. Eligible new hires cannot have any prior work history with the employer, cannot be a relative of the employer and must be a U.S. citizen or permanent resident.
- Temporary Assistance to Needy Families (TANF) Short-term recipients
- Temporary Assistance to Needy Families (TANF) Long-term recipients
- Veterans Supplemental Nutrition Assistance Program (SNAP) recipient
- Disabled veterans where the disability is service connected**
- Unemployed veterans**
- Supplemental Nutrition Assistance Program
- (SNAP) recipients, ages 18 to 39
- Supplemental Security Income (SSI recipients)
- Vocational rehabilitation work plan participants or Ticket-to-Work holders
- Person convicted of a felony or released within one year of hire
- Designated Community* residents, ages 18 to 39
- Summer youth employee, ages 16 to 17
- Qualified Long-term unemployment recipient
For most target groups, the credit is for the first $6,000 in gross wages paid to the employee in the first year of employment. However, maximum gross wages paid in the first year of employment for the disabled veteran are $24,000 and $10,000 for the long-term TANF recipient.
In addition, for hiring a long-term TANF recipient and working that employee into a second year, the employer can take a 50 percent credit on the first $10,000 in gross wages paid in the second year of employment. This is a potential $9,000 credit for hiring one long-term TANF recipient.