How to Claim the Work Opportunity Tax Credit
The Work Opportunity Tax Credit can reduce federal tax for employers that hired eligible workers before 2026 and completed the required certification process. As of November 2026, the credit isn't authorized for employees who start work in 2026.
If you hired someone before the cutoff, your records matter : the claim depends on timely state paperwork, certification, qualifying wages and hours. Here's how the process worked and how to review an eligible earlier hire.
Is the Work Opportunity Tax Credit available in 2026?
The IRS says the Work Opportunity Tax Credit, often called WOTC, was available for qualifying employees who began work through December 31, 2025. A person who starts a new job in 2026 doesn't qualify under that authorization, even if the person belongs to a target group.
That distinction matters when you're planning payroll. Don't budget a federal WOTC for a 2026 start based on an older hiring guide or a screening questionnaire. The IRS announcement on the credit's expiration identifies the December 31, 2025 cutoff.
An employer may still have an eligible claim connected to an earlier hire. For example, a business might have submitted a timely certification request for a 2025 employee but omitted the credit from its 2025 return. The next step is to review the certification, wage records and original return.
Which earlier hires may qualify?
WOTC was designed for employees in designated groups that face barriers to employment. Hiring someone in one of those groups didn't automatically create a credit. The employer also needed to meet the screening and submission rules, obtain state certification and pay qualifying wages.
The IRS identifies these target groups:
- Qualified recipients of Temporary Assistance for Needy Families (TANF).
- Qualified veterans.
- Qualified ex-felons.
- Designated community residents.
- Vocational rehabilitation referrals.
- Summer youth employees.
- Qualified recipients of Supplemental Nutrition Assistance Program (SNAP) benefits.
- Supplemental Security Income (SSI) recipients.
- Long-term family assistance recipients.
- Qualified long-term unemployment recipients.
Each category has its own requirements. For instance, a person's age, benefit history, residence or timing of unemployment can affect whether the person meets a particular definition.
WOTC applies to employees, not independent contractors paid for services. If you're reviewing an old hire, the distinction in our guide to employee and contractor classification can help you organize the payroll records.
Step 1: Screen the applicant before the offer
For an eligible hire within the authorized period, screening began with IRS Form 8850 , the Pre-Screening Notice and Certification Request for the Work Opportunity Credit. The timing was important: the applicant completed the prescreening information on or before the day the employer made the job offer.
Have the applicant complete the screening questions
Form 8850 asked the applicant questions related to the target groups. The answers helped identify a potential basis for certification, but they didn't establish eligibility by themselves.
An employer reviewing a 2025 hire should look for the completed form and the date it was signed. A start date before 2026 alone won't replace a missing prescreening step.
Complete the employer's portion
The employer's portion recorded dates associated with the application, offer, hire and start of work. The employer also signed the certification request before submitting it.
Those dates have different purposes. The offer date relates to prescreening, while the employee's start date starts the submission clock. The IRS Form 8850 instructions describe the information required for the request.
Keep screening information secure and limit access to employees responsible for hiring, payroll or the credit claim. The form may contain sensitive personal information that doesn't belong in a broadly shared hiring folder.
Step 2: Submit the certification request to the state
The employer sent Form 8850 and the applicable Employment and Training Administration forms to the state workforce agency , not to the IRS. This certification request was separate from the federal income tax return.
Include the applicable ETA form
Employers generally used ETA Form 9061, the Individual Characteristics Form, when the applicant didn't have a conditional certification. If the applicant had conditional certification, ETA Form 9062 generally accompanied Form 8850 instead.
For a qualified long-term unemployment recipient, ETA Form 9175 provided a self-attestation related to unemployment. The state agency's certification still determined whether the worker qualified for the target group.
Keep copies of the forms and any supporting information submitted. If the agency requested additional documentation, the response and the agency's determination belong with the original application.
Meet the 28-calendar-day deadline
The employer generally had to submit Form 8850 to the state workforce agency within 28 calendar days after the employee began work . This was not 28 business days, and it wasn't measured from the first paycheck.
A timely submission record is important when reviewing an earlier claim. An employer that missed the original deadline generally can't create eligibility by preparing the paperwork after the fact.
Step 3: Obtain the agency's certification
The state workforce agency reviewed the request and determined whether the employee belonged to a qualifying target group. The agency's certification is different from the employer's screening form: a checked answer on Form 8850 wasn't a substitute for approval.
A complete credit file should connect the determination to the employee's name and start date. It should also include the submitted forms and evidence of when the employer sent them. If the agency denied certification, the employer can't treat the employee as certified based only on its own review.
The IRS WOTC overview describes the certification requirement and the federal claiming process.
Certification is one part of the calculation. Payroll records must also show enough qualifying hours and wages to support the amount claimed.
Step 4: Calculate qualifying hours and wages
The credit amount depends on the certified target group, qualifying wages and hours worked. The often-quoted $2,400 maximum applies to many employees, but it isn't the maximum for every category.
Apply the hours threshold
For many qualifying hires, the first-year credit is:
- Zero if the employee worked fewer than 120 hours.
- 25% of qualifying wages if the employee worked at least 120 hours but fewer than 400 hours.
- 40% of qualifying wages if the employee worked at least 400 hours.
Use payroll and time records rather than assuming an employee met a threshold because they remained on the schedule for a certain number of weeks. Paid wages and hours worked answer different parts of the calculation.
Apply the correct wage limit
For many target groups, the first-year wage limit is $6,000. At the 40% rate, that produces a maximum credit of $2,400 for the employee.
Some categories have different limits. For example, the Form 5884 instructions list a $24,000 wage limit for certain qualified veterans with a service-connected disability and a qualifying period of unemployment. That can produce a maximum first-year credit of $9,600 at the 40% rate.
Long-term family assistance recipients have separate first- and second-year rules. Use the certified category and the applicable year's form instructions rather than applying the standard $6,000 limit to every employee.
Step 5: Claim the credit on the federal return
State certification doesn't put the credit on your tax return. After certification, the employer calculates the eligible amount and includes the appropriate federal forms with the return for the relevant tax year.
Taxable businesses use Form 5884
Taxable employers generally use Form 5884, Work Opportunity Credit , to calculate the credit. The credit then generally flows through Form 3800, General Business Credit, to the applicable income tax return.
Partnerships and S corporations generally calculate the credit at the business level and pass it to partners or shareholders through Schedule K-1. Owners then report their share under the applicable general business credit rules. The IRS Form 5884 page identifies the form used for qualifying first- or second-year wages.
A sole proprietor generally reports the business credit through the individual return. The return path depends on how the business is taxed, not merely on whether its legal name includes "LLC."
Eligible tax-exempt employers use Form 5884-C
A qualifying tax-exempt employer may claim WOTC for eligible qualified veterans, subject to the applicable rules. Its claim generally uses Form 5884-C against the employer's share of Social Security tax, rather than the ordinary taxable-employer income tax route.
Tax-exempt organizations should keep the certification and payroll support with their federal filing records. Hiring a worker from another target group doesn't create the same tax-exempt WOTC claim.
Understand the tax limits and wage deduction
A calculated credit isn't always the amount a business can use immediately. WOTC is part of the general business credit, which has tax liability limits. The IRS Form 3800 page explains the form used to report that group of credits.
An unused general business credit may generally be carried back one year and forward up to 20 years, subject to the applicable rules. The business should retain its calculation so it can track any amount that remains available.
There's also an income tax deduction adjustment. Generally, the employer reduces its wage deduction by the amount of the work opportunity credit. Claiming both the full wage deduction and the credit on the same qualifying wages would overstate the tax benefit.
Other wage-based credits and exclusions can affect which wages are available for WOTC. Don't count the same wages for more than one credit where the tax rules prohibit it.
Review an omitted credit and organize your records
If your business certified a qualifying 2025 hire but didn't claim the credit, gather the original return, agency determination, submission proof, wage reports and hours worked. Then calculate the credit under the rules for that hire and tax year.
An amended return may be an option if the original return omitted an eligible credit. Refund claims generally face time limits, often based on the later of three years after filing the return or two years after paying the tax. The right amendment and deadline depend on the return and circumstances.
Keep the credit file separate from routine personnel records, with access limited to those who need it. Our bookkeeping controls checklist covers ways to organize financial records and responsibilities.
For future hires, continue normal onboarding and payroll reporting even though the federal WOTC isn't authorized for 2026 starts. Our new-hire payroll forms checklist covers other paperwork employers need to track.
Make an earlier claim with the right support
A Work Opportunity Tax Credit claim starts with an eligible hire and a timely state certification request. The federal return then needs the correct credit calculation, supporting payroll records and applicable forms.
If you're reviewing an earlier hire, our team can help with business payroll and tax services. A well-supported claim connects the state determination to the wages, hours and tax return.
