Work Opportunity Tax Credit (WOTC): Could You Be Missing Out on Thousands of Dollars?

In a year when most businesses could use a little extra help, the Work Opportunity Tax Credit (WOTC) could help businesses find thousands of dollars.  MP’s HR services shares what the Work Opportunity Tax Credit Program is, how to claim it, and how HR and payroll companies like MP can assist you with it.  

What the WOTC is 

The WOTC, approved through December 31, 2025 by the Consolidated Appropriations Act, gives a tax incentive to organizations that hire disadvantaged groups.   

WOTC Qualifications: Each hire must qualify for one of the below groups: 

• Supplemental Nutrition Assistance Program (SNAP) recipients 
• Temporary Assistance for Needy Families (TANF) recipients
• qualified veterans 
• ex-felons 
• residents of rural renewal counties or empowerment zones 
• vocational rehabilitation referrals 
• Supplemental Security Income (SSI) recipients
• long-term unemployed  

Depending on the group a worker qualifies for, the employer can claim different amounts.  The highest possible credit is $9,600 for a veteran with disability related to their service and who has been unemployed for six months or more.  

How to claim the WOTC  

To claim the WOTC, and employer should start by obtaining certification that a worker is a qualified member of one or more of the disadvantaged groups above.  To receive this certification, the employer needs to file Form 8850 with their state workforce agency.  They must do so within 28 days of the worker’s first day.   Once a taxable employer has obtained certification, they can claim the WOTC as a general business credit on Form 3800 against their income tax.  To do so, they’ll need to file  

• Form 5884  
• Form 3800  
• Their related income tax return and instructions (i.e., Forms 1040 or 1040-SR, 1041, 1120, etc.) 

Employers should note that the credit will be limited to the amount they owe in business income liability or Social Security tax. 

Tax exempt organizations claim the credit a little differently.  They will claim it on Form 5884-C.  They will claim their credit against the Social Security taxes they owe.  Note that this credit won’t affect their Social Security tax liability as reported on their employment tax return. The credit will be limited to the amount of employer Social Security tax that they owe on wages paid to all employees for the time period that the credit is claimed.  

All employers, whether tax exempt or taxable, cannot claim the WOTC immediately.  The calculation will be based on qualified wages that the employer pays the worker for the first year of employment and the number of hours they worked.  They can claim:   

• Up to 25% of qualified first-year wages for 120 to 400 hours worked 
• Up to 40% after the employee has worked 400 hours for that employer 

How MP can help your organization claim the WOTC 

 MP clients will enjoy a very simplified process in claiming the WOTC.  Using our innovative payroll software, we can easily calculate how much an organization can claim for a qualified worker.  MP’s applicant tracking system can assist clients in identifying new hires that may be eligible for the WOTC through our onboarding platform. We will submit forms for certification, then help your organization claim it against the taxes it owes. Employers can bypass every step of the process, leaving MP to handle the forms and required calculations. MP clients may find that they earn tax credits they would have missed otherwise, never leaving money on the table.  They can also use customized dashboards to track their WOTC eligibility and credits, should they want to see these numbers.