I heard there's a credit for hiring certain groups of workers, such as veterans or ex-felons. Is that the same thing as the work opportunity tax credit?

Answer:

Yes. The work opportunity tax credit (WOTC) provides an incentive to hire and pay wages to individuals from targeted groups that have particularly high unemployment rates or who have faced significant barriers to employment.

The Consolidated Appropriations Act, 2021 (Section 113 of Division EE P.L. 116-260) extended the ability to claim the WOTC for wages paid by an employer to members of targeted groups who begin work for the employer after 2020 and before 2026. Generally, the WOTC is equal to 40 percent of the qualified wages paid to a targeted group employee who performs at least 400 hours of service during his or her first year of employment with the employer.

You must pre-screen and obtain certification from your state workforce agency (SWA) that an individual is a targeted group member before you claim the credit. To satisfy the requirement to pre-screen, on or before the day a job offer is made, Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit must be completed by you and the job applicant. Generally, you obtain certification by submitting Form 8850 to the SWA. You must submit the form not later than the 28th day after the individual begins work for you. 

Newly hired individuals from the following targeted groups might qualify you for this tax credit:

  • A qualified IV-A recipient, relating to Temporary Assistance for Needy Families (TANF).
  • A qualified veteran.
  • A qualified ex-felon.
  • A designated community resident.
  • A vocational rehabilitation referral.
  • A qualified summer youth employee.
  • A qualified supplemental nutrition assistance program (SNAP) benefits (food stamps) recipient.
  • A qualified SSI recipient.
  • A long-term family assistance recipient.
  • A qualified long-term unemployment recipient.

If you’re a partnership, S corporation, cooperative, estate, or trust, you calculate the credit by completing Form 5884, Work Opportunity Credit, and filing with your tax return or on Form 3800, General Business Credit, as appropriate. If your only source for the credit is a partnership, S corporation, cooperative, estate, or trust, you aren’t required to complete or file Form 5884, instead report the credit directly on Form 3800. If you're a qualified tax-exempt organization, calculate and claim the credit by completing and filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, after you file your employment tax return for the employment tax period for which you are claiming the credit. See the Instructions for Form 5884 and the Instructions for Form 5884-C.

Subcategory:

 

Back to Frequently Asked Questions