Work Opportunity Tax Credit (WOTC)
Authority: IRC §51; Form 8850
The WOTC is a federal hiring credit for employers who hire workers from targeted groups that face barriers to employment, including recipients of SNAP or TANF benefits, qualified veterans, ex-felons, long-term unemployed individuals, designated community residents, and vocational rehabilitation referrals. The standard credit is 40% of the first $6,000 of first-year wages ($2,400 per hire) for employees who work at least 400 hours, with a reduced 25% rate above 120 hours; certain veteran categories carry higher wage caps worth up to $9,600. The catch is procedural: IRS Form 8850 must be submitted to the state workforce agency within 28 days of the start date, so screening has to be built into onboarding, usually via a questionnaire in the hiring workflow. The credit offsets income tax (via the general business credit) and unused amounts carry back one year and forward 20.
Example
A restaurant hires five qualifying employees during the year, each certified and working over 400 hours at more than $6,000 of wages. The owner claims $12,000 of credits, cutting her federal tax bill dollar for dollar.
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