Running a small business means keeping an eye on every dollar, especially when it comes to taxes. But did you know there’s a federal tax credit that could put thousands back in your pocket just for hiring employees?
The Work Opportunity Tax Credit (WOTC) is a federal program that could do exactly that. Unless Congress decides to extend it, WOTC is set to expire on December 31, 2025, so now is the time to take advantage. Most experts believe it’s likely to be renewed, and some lawmakers are even advocating for it to become a permanent part of the tax code. But until that’s official, it’s smart to act while the program is still active, especially since it can save your business up to $9,600 per qualifying hire.
According to Bloomberg Tax, one in five new hires could meet the criteria. That’s real money many small businesses miss out on often without even realizing it.
What Is WOTC and Why Smart Employers Use It
WOTC is a federal tax credit available to employers who hire individuals from certain target groups that have consistently faced barriers to employment. It’s smart, inclusive hiring that also benefits your bottom line. Since 1996, WOTC has helped businesses grow more diverse teams while offering dollar-for-dollar tax relief (not just deductions). Every dollar you claim through WOTC is a dollar less you owe in federal taxes.
Who Qualifies for WOTC?
WOTC applies to ten “targeted groups” of job candidates who may otherwise be overlooked:
- Veterans, especially those with service-connected disabilities or long-term unemployment. These hires qualify for up to $9,600 in credits and often bring leadership and resilience.
- Individuals transitioning off government assistance, including families receiving Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP) benefits, or Supplemental Security Income (SSI). These are motivated workers seeking long-term stability.
- Individuals with a felony conviction who are hired within one year of either their conviction date or release from prison. This group includes people reentering the workforce who often show resilience, loyalty, and a strong desire to succeed.
- The long-term unemployed, youth in empowerment zones (EZ), and people with disabilities referred through vocational rehabilitation programs:
- Long-term unemployed: The individual must have been unemployed for 27 consecutive weeks or more at the time of hiring. They must have received unemployment compensation during some or all of that period.
- Youth in EZ: Youth in specific economically distressed urban and rural areas designated by the federal government to encourage job creation and investment through tax incentives. This includes individuals aged 16–17 who live in a federally designated EZ and are hired for a summer job. The work must take place between May 1 and September 15 of the same year.
- People with disabilities: The individual must have a documented disability and must have been referred to the employer through a state-certified vocational rehabilitation agency, an Employment Network under the Ticket to Work program, or the Department of Veterans Affairs.
Understanding the Financial Impact of WOTC
The credit equals 40% of up to $6,000 in wages for employees who work at least 400 hours, up to a maximum of $2,400 per hire. Employees who work between 120 and 399 hours still earn a 25% credit. Industries like retail, hospitality, food service, and healthcare often find that 20–25% of their new hires qualify. That means if your business hires 50 people a year and just 10 qualify, you could see more than $20,000 in annual tax savings.
Making WOTC Easy with the Right Tools
The process starts when you hire someone. During onboarding, you and your new employee fill out a short form (IRS Form 8850,) to see if they qualify for the Work Opportunity Tax Credit.
But here’s the tricky part:
That form must be sent to your state’s workforce agency within 28 days of the employee’s first day. If you miss that deadline, you can’t claim the tax credit, even if the employee qualifies. The good news? If you use an HR platform with WOTC features built in, it does a lot of the work for you. These tools can guide you step-by-step, remind you about key deadlines, and keep all your paperwork in one place so nothing slips through the cracks.
Why Smart Businesses Prioritize WOTC
Instead of looking at WOTC as a tax perk, forward-looking businesses see it as a competitive hiring strategy. By expanding your candidate pool, you gain access to individuals with valuable life experience, determination, and skills. Veterans offer leadership. Individuals transitioning off assistance often prove to be highly driven. Employees with disabilities frequently bring creative problem-solving and deep commitment.
Best of all, participation is voluntary. You remain in control of hiring decisions while benefiting financially from inclusive practices.
Don’t Leave Money on the Table
WOTC is currently set to expire on December 31, 2025. Although it has been renewed before, there’s no guarantee it will return. If you run a business that hires regularly, the potential tax savings are significant. But those savings depend on hitting the 28-day deadline, making automated tracking essential.
Let Commonwealth Payroll & HR Help You Save with WOTC
At Commonwealth Payroll & HR, we make it easy to take advantage of the Work Opportunity Tax Credit. Our platform builds WOTC screening right into your new hire process with no paper forms, no guesswork, and no missed deadlines. Ready to stop leaving money on the table? Reach out today and let’s talk about how we can help you turn smart hiring into real savings.
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