You’ve heard fellow business owners rave about how the Work Opportunity Tax Credit (WOTC) has helped them save money, and now you’re eager to do the same.
But what’s the first step to securing those savings?
In 2024, more than 1.5 million (1,577,683 to be exact) WOTC credits were issued to businesses, but none of that was possible without the crucial step of employee certification. Without proper certification, even the most eligible candidates won’t count toward your tax credit. It’s a critical step that ensures your business qualifies for savings.
So, before anything else, it’s essential to understand the certification process. In this blog, we’ll walk you through everything you need to know to certify employees for the WOTC and claim this valuable tax benefit.
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit is a federal tax break for businesses that hire people from groups who’ve historically faced barriers to employment. It’s meant to encourage inclusive hiring while lowering your tax bill.
If your new hire qualifies and you complete the WOTC certification process correctly, you can claim a tax credit equal to up to 40% of their first-year wages. The exact credit depends on how long the employee works and which targeted group they belong to:
- 40% of up to $6,000 in wages (up to $2,400) for most eligible employees who work 400+ hours.
- 25% of wages if the employee works at least 120 but fewer than 400 hours.
- Up to $9,600 for qualified veterans.
- Up to $24,000 in wages may apply in special veteran cases.
This credit only applies to new hires (on or before December 31, 2025). You can’t claim it for anyone you’ve previously employed.
Who are the 10 targeted groups?
To qualify for the Work Opportunity Tax Credit, your new hire must belong to one of these 10 groups and meet specific criteria. Here’s a quick breakdown:
- Qualified veterans: Unemployed Veterans receiving SNAP benefits, or have a service-connected disability, especially those recently discharged or long-term unemployed, may qualify.
- Qualified IV-A recipients (TANF): Individuals from families receiving Temporary Assistance for Needy Families (TANF) for at least 9 of the 18 months before their hire date.
- Qualified SNAP recipients: Adults aged 18–39 who are part of a family that received food stamps (SNAP) for either the past 6 months or at least 3 of the last 5 months. This is one of the largest eligible groups for the WOTC, which accounts for 64.82% of all WOTC-eligible employees.
- Designated community residents (DCRs): Individuals aged 18–39 who live in an Empowerment Zone or a Rural Renewal County at the time of hiring.
- Vocational rehabilitation referrals: People with physical or mental disabilities referred by a rehab agency or program, including those run by the state, VA, or Social Security’s Ticket to Work initiative.
- Qualified ex-felons: Someone hired within a year of being convicted of a felony or released from prison after serving time for one.
- Supplemental Security Income (SSI) recipients: Anyone who received SSI benefits during any month in the 60 days before being hired.
- Long-term unemployed individuals: Individuals who were unemployed for at least 27 consecutive weeks and received unemployment benefits during part of that period.
- Qualified summer youth employees: Youth aged 16–17 who live in Empowerment Zones and are hired for seasonal work between May 1 and September 15.
- Long-term family assistance recipients: People from families that received TANF for 18 consecutive months, received it for 18 months total within the last 2 years, or lost benefits due to a legal time limit within the past 2 years.
The certification process (and why it matters)
It’s not enough that your employee might qualify to claim the Work Opportunity Tax Credit. You must get them certified by your state workforce agency. And the timeline is strict, so follow these steps:
1. Pre-screen with IRS Form 8850: Complete the form on or before the day you offer the job. It confirms your new hire may belong to a targeted group.
2. Fill out the timeline correctly: Page 2 of Form 8850 asks for four key dates that are
- When the applicant gave eligibility info
- When the job was offered
- When they were hired
- When they started work
These must follow a specific sequence, and all must be signed under penalties of perjury.
3. Submit Form 8850 to your state workforce agency: You must send it within 28 days of the employee’s start date. Send it to your state, not the IRS. If you miss the deadline, you’re not eligible for the credit. Period.
What happens after certification?
Once you receive confirmation from the state that your employee is certified as eligible, then you can:
- Use Form 5884 to calculate the credit.
- Report it on your tax return using Form 3800 (General Business Credit).
Tax-exempt organizations can claim the WOTC, too, but only for hiring qualified veterans. In that case, they use Form 5884-C and apply it against payroll taxes.
A quick reminder: wages used for Work Opportunity Tax Credits for hiring employees can’t be used to claim other wage-based credits. Choose wisely if you’re eligible for multiple programs.
The bottom line
While the Work Opportunity Tax Credit is a good tax break, it’s only one of many credits and deductions available to businesses. Business owners get plenty of other opportunities that can also reduce their tax burden.
But most growing businesses miss out because the tax laws are constantly shifting, and they don’t have the time or expertise to track every possible credit and deduction. Hiring an in-house expert to manage it all just doesn’t make sense when you’re trying to lower your tax burden and, eventually, your expenses.
That’s where we come in. Partnering with CoCountant gives you access to tax professionals and bookkeeping experts who know exactly where to look for savings and how to claim them.
As part of our bookkeeping and accounting services, we keep your records accurate and up-to-date while actively seeking opportunities to reduce your tax liability and maximize your savings. Here’s how we do it:
- Daily bookkeeping: Accurate and real-time tracking of all your financial transactions for clear insights and smooth tax prep.
- Daily expense reconciliation: Ensure your expenses are tracked and reconciled every day, keeping your records error-free.
- Deferred revenue & prepaid expenses management: Properly record future revenue and expenses to help predict cash flow and maximize deductions during tax season.
- Tax compliance: Timely preparing all your tax documents, including W-2s, 1099s, and quarterly tax returns, to keep you compliant.
- Financial forecasting & budgeting: We provide budgeting and forecasting to keep your finances on track and support informed decision-making for growth.
FAQs
How long does it take to receive the certification after submitting Form 8850?
It varies by state workforce agency. Some states process certifications within weeks, while others may take a few months. You can follow up with your state’s agency if needed.
Can I claim the WOTC for remote employees?
Yes, as long as the employee meets all eligibility requirements, is on your payroll as a W-2 employee, and you submit the certification paperwork on time, it doesn’t matter whether they work on-site or remotely.
Does the WOTC apply to independent contractors?
No. The Work Opportunity Tax Credit only applies to employees on your payroll, not independent contractors or subcontractors. To qualify, the individual must be:
- Hired as a W-2 employee
- Paid wages subject to federal income tax withholding
- On your books as part of your official payroll
Independent contractors (those paid via 1099) don’t meet this requirement. So if you’re working with freelancers, gig workers, or subcontractors, their wages do not count toward this credit.
