Who Qualifies for the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to encourage employers to hire individuals who have consistently faced barriers to employment. The credit reduces an employer’s federal tax liability, making it a beneficial program for businesses seeking to expand their workforce while contributing to community well-being.

Qualifying Target Groups

The WOTC is specifically available to employers who hire individuals belonging to one of several designated target groups. Each group has distinct criteria that must be met by the individual for the employer to qualify for the credit.

Qualified IV-A Recipient

A Qualified IV-A Recipient refers to an individual whose family receives Temporary Assistance for Needy Families (TANF) benefits. To be eligible under this category, the family must have received assistance for any nine months within the 18-month period ending on the individual’s hiring date. This helps address employment barriers faced by those transitioning from public assistance.

Qualified Veterans

Qualified Veterans encompass several sub-categories, recognizing the challenges some veterans face in the civilian workforce. This includes veterans who are members of a family that received Supplemental Nutrition Assistance Program (SNAP) benefits for at least three months during the 15-month period before their hiring date. Veterans unemployed for at least four weeks within the year prior to being hired may also qualify.

Furthermore, veterans entitled to compensation for a service-connected disability can qualify if they are hired within one year of leaving active duty. The WOTC also applies to veterans who were unemployed for at least 27 consecutive weeks in the year before their hire date. These provisions aim to support veterans re-entering the workforce.

Qualified Ex-Felon

A Qualified Ex-Felon is an individual hired within one year of their conviction or release from prison for a felony. This category supports the reintegration of individuals with felony convictions into society through employment. Employers can leverage this credit by providing opportunities to those who have served their time.

Designated Community Residents (DCRs)

Designated Community Residents (DCRs) are individuals aged 18 through 39 who reside within an Empowerment Zone or Rural Renewal County. This designation targets areas that have historically experienced economic distress and high unemployment rates. The individual must continue to reside in such a designated area after employment.

Vocational Rehabilitation Referral

A Vocational Rehabilitation Referral involves individuals with a physical or mental disability that creates a substantial barrier to employment. These individuals must be referred to the employer while receiving, or upon completion of, rehabilitative services from an authorized agency. This category acknowledges the support provided by vocational rehabilitation programs.

Qualified Summer Youth Employees

Qualified Summer Youth Employees are individuals aged 16 or 17 who are hired for a period between May 1 and September 15. To qualify, these youth must reside in an Empowerment Zone or Rural Renewal County. This provision encourages seasonal employment opportunities for young people in economically distressed areas.

Qualified Supplemental Nutrition Program (SNAP) Recipients

Qualified Supplemental Nutrition Program (SNAP) Recipients are generally individuals aged 18 through 39 who are members of a family that received SNAP benefits for at least six months. This group focuses on those who have relied on food assistance.

Qualified Supplemental Security Income (SSI) Recipient

A Qualified Supplemental Security Income (SSI) Recipient is an individual who receives Supplemental Security Income benefits. This category supports the employment of individuals with disabilities or those aged 65 or older who meet the financial criteria for SSI. Their inclusion recognizes the unique employment challenges they may face.

Long-Term Unemployment Recipients

Long-Term Unemployment Recipients are individuals who have been unemployed for at least 27 consecutive weeks prior to their hire date. They must also have received unemployment compensation during at least some of that time. This encourages employers to consider individuals facing prolonged joblessness.

Long-Term Family Assistance Recipient

Finally, the Long-Term Family Assistance Recipient category applies to individuals who have received TANF for at least 18 consecutive months. This group focuses on promoting self-sufficiency for families with a sustained history of receiving public assistance. The credit supports their transition to stable employment.

General Hiring and Employment Criteria

Beyond the specific target group qualifications, certain general conditions apply to the employment relationship itself for the Work Opportunity Tax Credit. These criteria ensure that the credit is applied to new employment opportunities that align with the program’s objectives.

The individual hired must be a new employee, not someone previously employed by the same business. There is an exception for summer youth employees who may be rehired under specific conditions. This rule prevents employers from cycling existing staff through the program for tax benefits.

The new hire must begin work for the employer on or before December 31, 2025, as the WOTC program is currently authorized through this date. This expiration date directly impacts eligibility for future hires.

For most target groups, the individual must be employed for at least 120 hours to qualify for a partial credit. To receive the full credit, the employee must complete at least 400 hours of service. However, for Qualified IV-A (TANF) recipients, a minimum of 400 hours is required for any credit.

The individual hired cannot be related to the employer if the employer is an individual, nor can they be a dependent of the employer. This restriction prevents the credit from being claimed for family members. The position must also be for a trade or business, ensuring the employment contributes to economic activity.

Preparing for Certification

Employers seeking the Work Opportunity Tax Credit must follow specific steps to verify a new hire’s eligibility and prepare for certification. This preparatory phase is crucial, as timing and proper documentation are important for a successful application.

Certification for the WOTC must be obtained from a State Workforce Agency (SWA). These state agencies are responsible for reviewing applications and determining if an individual meets the criteria for a targeted group. Employers interact directly with their state’s SWA throughout the certification process.

A pre-screening step is required where employers must determine eligibility on or before the job offer is made. This involves collecting information from the job applicant to ascertain if they belong to a qualified target group. The pre-screening process ensures that eligibility is established at the initial stages of hiring.

The primary forms involved in this process are IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” and ETA Form 9061, “Individual Characteristics Form (ICF).” Form 8850 captures basic information about the employee and their potential qualifying status, serving as the formal request for certification. ETA Form 9061 gathers more detailed information directly from the applicant to support their claim to a specific target group.

Submitting Certification Requests

Once the necessary preparatory steps are complete, employers must formally submit their certification requests to the appropriate State Workforce Agency (SWA). This procedural action is time-sensitive and follows a specific protocol to ensure timely processing.

IRS Form 8850 and ETA Form 9061 must be submitted to the SWA within 28 days of the eligible individual’s start date. This 28-day deadline is strict, and late submissions generally result in denial of the credit for that hire.

Submission methods typically include online portals, mail, fax, or email, depending on the specific state’s SWA procedures. Employers should consult their state’s SWA for precise instructions on how to transmit these completed forms. The focus at this stage is purely on the administrative act of sending the prepared documents.

After submission, the SWA reviews the application and the supporting documentation. If the individual is determined to be eligible for the WOTC, the SWA will issue a certification letter, often in the form of a certified IRS Form 8850. This certification is the employer’s official confirmation of the new hire’s qualifying status.