The answers to the following frequently asked questions are based on guidance from the Internal Revenue Service. For more information, visit the IRS WOTC webpage.
What is WOTC?
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
WOTC joins other workforce programs that incentivize workplace diversity and facilitate access to good jobs for American workers.Back to Top
What does WOTC do?
WOTC helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability.Back to Top
How does WOTC work?
The tax credit employers can claim depends upon the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that can be earned.
- For the long-term Temporary Assistance for Needy Families (TANF) target group only, the credit is available to employers who hire members of this group for up to a two-year period.
- In the first year, the employer may claim a tax credit equal to 40% of the first-year wages, up to the maximum tax credit, if the individual works at least 400 hours.
- In the second year, the employer may claim a tax credit equal to 50% of the second-year wages, up to the maximum tax credit, if the individual works at least 400 hours.
- For all other target groups, the credit is available to employers who hire members of these groups, based on the individual's hours worked and wages earned in the first year.
- If the individual works at least 120 hours, the employer may claim a tax credit equal to 25% of the individual's first year wages, up to the maximum tax credit.
- If the individual works at least 400 hours, the employer may claim a tax credit equal to 40% of the individual's first year wages, up to the maximum tax credit.
How can WOTC support the goals of workforce and community partners?
WOTC can be added to an organization's tool kit for serving businesses. The tax credit can allow business customers to reduce their federal income tax liability between $2,400 and $9,600 per employee hired, per year.
WOTC can help your qualified job seekers obtain employment by offering an incentive to employers who are considering hiring them. Qualified job seekers include veterans, TANF recipients, SNAP (Food Stamp) recipients, Vocational Rehabilitation participants, ex-offenders, SSI recipients, and individuals who live in Empowerment Zones or Rural Renewal Counties.Back to Top
How large is the tax credit?
The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired.Back to Top
How are the tax credits calculated?
Employers generally can earn a tax credit equal to 25% or 40% of a new employee's first-year wages, up to the maximum for the target group to which the employee belongs. Employers will earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours. Use the WOTC Calculator to see how much your business can earn in tax credits.Back to Top
What are the maximum tax credit amounts?
The maximum tax credit amounts depend on the new employee's target group and the number of hours worked during the first year of employment. Click here for the maximum tax credits associated with each WOTC target group.Back to Top