Contents

• Rationale and General Design of the Credit
• Current Status
• Calculation of Credit and Maximum Credits
• Eligible Worker Populations
• Eligible Employers
• Mechanics of the WOTC
• Usage and Costs
• Data on Individuals Certified for the WOTC
• Data on Employers Claiming the WOTC

Summary

The Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code that allows employers that hire individuals with certain personal characteristics to claim a tax credit equal to a portion of the wages paid to those individuals. WOTC-eligible populations include recipients of certain public benefits (such as the Supplemental Nutrition Assistance Program or Temporary Assistance to Needy Families), qualified veterans, ex-felons, and other specified populations. WOTC is a temporary provision of the Internal Revenue Code, and has lapsed and been reauthorized several times. On January 1, 2026, authority lapsed for employers to claim the credit on the basis of wages paid after December 31, 2025.

The amount of the WOTC is calculated as a percentage of qualified wages paid to an eligible worker during the worker's first year of employment, up to a statutory maximum wage amount. An employer may claim a credit equal to 40% of an eligible employee's qualified wages if the qualified employee worked at least 400 hours during the first year of employment. If the employee worked fewer than 400 hours but more than 120 hours, the employer may claim a credit equal to 25% of the employee's qualified wages. If the employee worked fewer than 120 hours, an employer may not claim the WOTC. The WOTC is a nonrefundable tax credit, and an employer must have a sufficient tax liability to claim it.

Statute defines the maximum amount of qualified wages that may be WOTC-eligible, so the maximum credit is equal to 40% of these statutory limits. The limit of wages that are WOTC-eligible varies by the characteristics of the worker. The most common wage ceiling is $6,000 (for a maximum credit of $2,400), though some subpopulations are eligible for a higher or lower maximum.

To claim the WOTC, an employer must have the employee certified as eligible by the appropriate state workforce agency. To do this, the employer submits a form to the state agency within 28 days of hiring the WOTC-eligible worker. The state agency determines that the individual meets the requirements and certifies the application. The employer may claim the credit as part of the General Business Credit. These credits can be carried back one tax year or carried forward up to 20 tax years.

Definitive data on WOTC claims by employers are not available. Data on the number of individuals certified by state workforce agencies are available, but these data likely include some individuals who were certified as eligible for the WOTC but did not subsequently work the minimum number of hours necessary for the employer to be eligible for the credit. In FY2017, the most recent year for which data are available, approximately 2 million workers were certified as eligible for the WOTC.

The Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code (IRC) that provides a tax credit to employers that hire workers with certain personal characteristics, including veterans, recipients of certain public benefits, or other specified populations.¹

Rationale and General Design of the Credit

The WOTC is designed to incentivize the hiring of employees with certain characteristics by subsidizing a portion of the qualified worker's wage.² If an employer has a choice between hiring two identical applicants, one of whom is eligible for the WOTC and one of whom is not, the employer may opt to hire the WOTC-eligible applicant because employing that worker will have a lower after-tax cost due to the credit.

The credit is structured to provide an advantage to workers from WOTC target groups seeking employment; it is not designed to stimulate the creation of new jobs. An eligible hire may be an additional employee of a firm or he or she may replace a separated employee.

Current Status

On January 1, 2026, authority lapsed for employers to claim the credit on the basis of wages paid after December 31, 2025.³ However, employers are still able to claim credits based on wages that were paid on or before December 31, 2025, that needed to be carried forward due to limitations (see "Mechanics of the WOTC," below). WOTC is a temporary provision of the IRC. In the past, the WOTC has lapsed and then been extended retroactively as part of broader legislation that extended a group of temporary tax provisions ("tax extenders").⁴ For example, the WOTC lapsed after December 31, 2013, but was retroactively extended by the Tax Increase Prevention Act of 2014 (P.L. 113-295), enacted in December of 2014.

Despite its lapsed status, Congress has continued to provide funds to state agencies for the administration of the credit. Most recently, the Consolidated Appropriations Act, 2026 (P.L. 119-75; enacted February 2026) appropriated $17.5 million to the Department of Labor (DOL) for state administration of the WOTC. In April 2026 guidance associated with allotting these funds, DOL noted the expired credit and quoted prior guidance in directing that "States can continue to review and prepare WOTC certification requests when there is a WOTC authorization lapse but may not issue a certification."⁵

Calculation of Credit and Maximum Credits

The amount of the WOTC is calculated as percentage of qualified wages paid to an eligible worker during the eligible employee's first year of employment.⁶ An employer may claim a credit equal to 40% of the eligible employee's qualified wages if the eligible worker works at least 400 hours during the first year of employment.⁷ If the eligible employee works fewer than 400 hours but at least 120 hours, the employer may claim a credit equal to 25% of the eligible employee's wages. If the eligible employee works fewer than 120 hours, an employer may not claim the WOTC.

Statute defines the maximum amount of qualified wages that are WOTC-eligible for each eligible population (as discussed below), so the maximum credit would be equal to 40% of these statutory limits. For example, the maximum eligible wages for a qualified ex-felon are $6,000, so the maximum credit for an employer that hired such an individual would be 40% of $6,000 or $2,400.

Eligible Worker Populations

This section describes the populations eligible for the WOTC under its most recent<del> </del>authorization.⁸

For most target groups, the maximum wages that are eligible for WOTC credit are $6,000. Assuming the eligible employee works at least 400 hours and the employer claims the full 40% credit, the maximum credit for most eligible workers is $2,400. Some eligible populations have different levels of qualified wages. Populations with maximum wages that are higher or lower than $6,000 are noted in their descriptions.

• 1. Temporary Assistance to Needy Families (TANF) recipient (listed in the law as "qualified IV-A recipient,") which refers to the Title of the Social Security Act that authorizes TANF. A WOTC-eligible TANF recipient is an individual who is a member of a family receiving assistance under a IV-A program for any 9 of the 18 months prior to the worker's hire date.
• 2. Qualified veteran is a worker who served on active duty in the United States armed forces for at least 180 days, has been discharged for at least 60 days, and meets at least one of the additional criteria listed below:
• A veteran who is a member of a family receiving Supplemental Nutrition Assistance Program (SNAP) assistance for at least 3 of the past 12 months.
• A veteran with a service-connected disability for which he or she is entitled to compensation and who is within one year of discharge (maximum WOTC-eligible wages of $12,000).
• A veteran with a service-connected disability for which he or she is entitled to compensation and who has been unemployed for at least six months of the prior year (maximum WOTC-eligible wages of $24,000).
• A veteran with an aggregate period of unemployment of at least four weeks but less than six months during the prior one year.
• A veteran with an aggregate period of unemployment of at least six months during the prior year (maximum WOTC-eligible wages of $14,000).
• 3. Qualified ex-felon is an individual who has been convicted of a felony under state or federal law and has a hiring date that is within one year of either the individual's conviction or release from prison.
• 4. Designated Community Resident (DCR) is an individual between the ages of 18 and 39 who has "a principal place of abode within an empowerment zone ... or rural renewal county."⁹
• 5. Vocational Rehabilitation Referral is a person with a physical or mental disability who is receiving or has received services under a state vocational rehabilitation program, the Department of Veterans Affairs Vocational Rehabilitation and Employment program, or an employment network through the Social Security Ticket to Work program.
• 6. Summer Youth Employee is an individual age 16 or 17 who has a "principal place of abode within an empowerment zone" and is employed between May 1 and September 15 (maximum WOTC-eligible wages of $3,000).¹⁰
• 7. Qualified SNAP recipient is an individual between the ages of 18 and 39 and either (1) is a member of a family receiving SNAP benefits for the six-month period ending on the hiring date or (2) received benefits for at least three months of the five-month period ending on the hiring date, in the case of individuals who cease to be eligible for assistance under the work requirement at Section 6(o) of the Food and Nutrition Act of 2008.¹¹
• 8. Supplemental Security Income (SSI) recipient is an individual who has received SSI under Title XVI of the Social Security Act for any month ending within the 60-day period ending on the hiring date.
• 9. Long-Term TANF Recipient (listed in the law as "long-term family assistance recipient") is a member of a family that has been receiving TANF benefits for the past 18 months or has exhausted TANF benefits in the past two years. Unlike other populations, an employer may claim the WOTC on behalf of a long-term family assistance recipient for two years. The maximum wages eligible for the WOTC for long-term family assistance recipients is $10,000 per year. During the second year of employment, the WOTC is equal to 50% of the eligible worker's wages.
• 10. Qualified Long-Term Unemployment Recipient is an individual who has been unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law at some point during this period.

Eligible Employers

WOTC is a nonrefundable credit. As such, an employer must have tax liability to claim the credit. Since the WOTC can be claimed in a tax year subsequent to the year of hire, it is possible that an employer that hires a WOTC-eligible worker, but does not have sufficient tax liability in the year in which the eligible worker was hired, would be able to have the WOTC applied to a subsequent tax year in which the employer has tax liability.¹²

Tax-exempt organizations that employ WOTC-eligible veterans may be eligible to claim a credit against the organization's payroll tax liability. This provision is limited to organizations that employ qualified veterans and does not apply to tax-exempt organizations that employ other WOTC-eligible populations.

Mechanics of the WOTC

Individuals' eligibility for the WOTC is determined by state workforce agencies (SWAs). These state agencies also process WOTC certifications.¹³

The eligibility determination process can follow one of two paths:

• An eligible group member obtains a conditional certification (ETA Form 9062) from a participating state or local agency.¹⁴ The jobseeker then uses it to market himself or herself to an employer. The employer completes a pre-screening/certification request (IRS Form 8850) by the date a job offer is made and submits both the IRS and ETA forms to the state's WOTC coordinator within 28 days after the new hire starts working.¹⁵
• An employer completes IRS Form 8850 by the date a job offer is made to an applicant believed to belong to the WOTC population. The employer also completes the individual characteristics information (ETA Form 9061).¹⁶ The IRS and ETA forms must be mailed to the state's WOTC coordinator within 28 days after the new hire starts working.

States then verify that an individual is a member of a covered group and notify the employer that the application has been certified. States receive grants from DOL to support the administrative costs of processing WOTC certifications.

Once a new hire is certified, the employer may claim WOTC as part of the General Business Credit.¹⁷ If an employer does not have tax liability in the tax year that the WOTC-eligible worker was hired, the credit from the WOTC—as part of the General Business Credit—can be carried back up to one year or carried forward up 20 years before expiring.

As noted in each of the two scenarios above, the IRS Form 8850 must be submitted within 28 days after the eligible hire begins work.¹⁸

Usage and Costs

Definitive data on the usage and costs of the WOTC are not available. However, data from DOL on workers certified for the WOTC and data from the IRS on WOTC claims by certain entities can offer some insight into usage of the credit.

DOL tracks the number of individuals who are certified as eligible for the WOTC, but, since not every certified worker meets the employment retention requirements, it is likely that the number of individuals on behalf of whom the WOTC is claimed is lower.

The primary costs of WOTC to the government are foregone tax revenue.¹⁹ Estimates of the value of credits claimed are published each year. However, due to employers' ability to apply the WOTC to prior or subsequent tax years, these estimates may not fully reflect the level of WOTC-based hiring during the reference year.

Data on Individuals Certified for the WOTC

The U.S. Employment Service in the Employment and Training Administration collects figures on the number of certifications issued to employers. The number of certifications is likely more than the number of employees for whom employers claim credits because not all certified workers will be hired and not all eligible hires fulfill the retention requirement. The government does not collect statistics on the number of individuals for whom the credits actually are claimed. It would be difficult to reconcile the number of certifications and the number of credits claimed in a given tax year because companies that receive a certification for an eligible individual hired late in one tax year may not claim a credit for them until a following tax year, when the retention requirement has been met. In addition, credits claimed for persons certified in one year may be applied against income tax liabilities in past or future tax years.

Table 2 presents data on WOTC certifications from FY2022 through FY2024 (the most recent data available at the time of publication) as well as three-year totals. The table disaggregates each of the ten populations identified in statute and sorts them by their share of certifications over the three-year period. SNAP recipients made up about 64% of certifications over the FY2022-FY2024 period. Long-term unemployed individuals were the second-largest group and accounted for approximately 11% of certifications during the three-year period.

Table 2 does not include applications that were denied or applications that were pending at the time of the tabulation of the sources cited.²⁰

Data on Employers Claiming the WOTC

Most of the costs to the government from tax credits are in the form of revenue forgone rather than appropriated funds. Precise data on WOTC claims are not available from the IRS, but the Joint Committee on Taxation's report on tax expenditures estimated that WOTC claims in FY2025 were about $1.3 billion, with corporations claiming about $900 million and individuals (including employers that claim business income and expenses on their individual tax returns) claiming about $400 million.²¹ More granular data on the characteristics of employers that claimed the credit or the qualifying characteristics of workers on whose behalf credits were claimed are not available.

Appendix. Legislative History

WOTC is a temporary provision of the Internal Revenue Code. The WOTC's duration is limited by language in the law that specifies that wages paid to an eligible worker hired after a certain date are ineligible for the WOTC. Under current law, wages earned by workers hired after December 31, 2025, are not eligible for the WOTC. In general, there is no beginning date in the law regarding eligible hires.²² This construction means that simply extending the ending date in the law extends the program with retroactivity.

The credit has lapsed a number of times before being retroactively reauthorized. In addition to extending the duration of the credit, reauthorization legislation has changed the eligible populations and maximum credit levels. In other instances, legislation has changed WOTC-eligible populations and credit levels without extending the duration of authorization.

In addition to the WOTC, this legislative history also discusses the Welfare to Work (WtW) Tax Credit, which existed from 1997 to 2006. In 2007, the Welfare to Work Tax Credit was repealed and the credit's eligible population was incorporated into the WOTC population.

104^th Congress

The WOTC was created by Section 1201 of the Small Business Job Protection Act of 1996 (P.L. 104-188). It allowed for-profit employers to claim a tax credit against their federal income tax liabilities for hiring members of seven specifically designated groups from October 1, 1996, through September 30, 1997.

105^th Congress

The Taxpayer Relief Act of 1997 (P.L. 105-34) substantially revised the program by shortening the minimum employment requirement to 120 hours and creating a two-tier subsidy based on the length of retention. It also extended the credit for nine months from October 1, 1997, through June 30, 1998.

P.L. 105-34 also created the Welfare to Work (WtW) tax credit, which offered incentives to employers that hired long-term recipients of Title IV-A benefits. As noted previously, this credit would eventually be incorporated into the "long-term family assistance recipients" credit under WOTC.

WOTC lapsed for almost four months before being reauthorized for one year (through June 30, 1999) retroactive to its expiration date in the Omnibus Consolidated and Emergency Appropriations Act, 1999 (P.L. 105-277).

106^th Congress

The 106^th Congress reauthorized WOTC retroactive to its expiration date and extended the credit through December 31, 2001, in the Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170). This law also extended the WtW credit for the same period.

The 106^th Congress later expanded the definition of the "high risk" and "summer youth" groups to include renewal communities (effective January 1, 2002) through passage of the Consolidated Appropriations Act, 2001 (P.L. 106-554).

107^th Congress

After about a two-month lapse, the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147) reauthorized the WOTC. It extended the credit through December 31, 2003.

New York Liberty Zone Employees

The economic stimulus measure also amended the WOTC's eligible population to add "New York Liberty Zone business employees." Qualified businesses were defined as firms with 200 or fewer employees located in the vicinity of the World Trade Center as well as those that, due to property destruction or damage associated with the September 11 terrorist attack, had to relocate to other sections of New York City. While the other WOTC group members must be new hires in order for firms to claim a credit, New York Liberty Zone business employees were both existing and newly hired employees. The number of workers for whom firms that relocated elsewhere in New York City could claim the credit was limited to those on the employers' payrolls as of September 11, 2001; the cap did not apply to firms that remained in the zone or that moved into the zone. A qualified business could claim the WOTC for an eligible employee in 2002, 2003, or both years. The portion of the WOTC associated with the new target group was allowed against the alternative minimum tax.

108^th Congress

The first WOTC-related law enacted by the 108^th Congress was P.L. 108-203, the Social Security Protection Act of 2004. Among other provisions, the act modified the definition of the WOTC's vocational rehabilitation referral-eligible group in light of the Ticket to Work and Work Incentives Improvement Act of 1999. It effectively expanded the group to include disabled individuals with individualized work plans who are referred to employers not only by a state vocational rehabilitation agency (as was the case under prior law), but also by "employment networks" that were created by the Ticket to Work legislation. P.L. 108-203 did not extend the authorization for WOTC.

Later in the 108^th Congress, President George W. Bush signed P.L. 108-311, the Working Families Tax Relief Act of 2004, which extended unrevised versions of the WOTC and WtW credit through December 31, 2005.

109^th Congress

The 109^th Congress made two substantial changes to the tax provisions. Some changes were temporary, others were permanent.

Hurricane Disaster Relief

Congress temporarily expanded the WOTC eligible-groups to include "a Hurricane Katrina employee" as part of its emergency response. P.L. 109-73 added to the WOTC-eligible groups persons whose principal place of abode on August 28, 2005, was in the core disaster area and who,

• beginning on such date and to August 28, 2007, is hired for a position principally located in the core disaster area; and
• beginning on such date and to December 31, 2005, is hired for a position regardless of its location.

The WOTC's rule denying its application to wages of employees who had worked for the same employer at any prior time (except for those on the employer's payroll on August 28, 2005) was waived, as was the usual certification process.

Modifying the WOTC and Incorporating the WtW Credit into the WOTC

The WOTC and WtW credit expired after December 31, 2005. The credits remained lapsed for nearly a full year. In December 2006, P.L. 109-432 (the Tax Relief and Health Care Act of 2006) reauthorized the WOTC for two years, extending its expiration date to December 31, 2007. P.L. 109-432 also scheduled the consolidation of the WtW into the WOTC.

Changes to the WOTC credit became effective for persons hired after December 31, 2006. They were as follows:

• WOTC-eligibility for ex-felons was expanded by eliminating the requirement that they are members of economically disadvantaged families;
• WOTC-eligibility of food stamp recipients was expanded from 18- to 24-year-olds to include 25- to 39-year-olds;
• employers could file the required paperwork with their state's WOTC coordinator within 28 (rather than 21) days of an eligible-hire starting to work for them; and
• the WtW credit was repealed as a separate tax provision, with its eligible-group of long-term family assistance recipients uniquely handled under the WOTC effective January 1, 2007.

110^th Congress

Expansion of Certain Eligible Groups and Extension to August 2011

In May 2007, the President signed H.R. 2206 (the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Act of 2007, P.L. 110-28) into law. P.L. 110-28 extended the WOTC for three-and-one-half years through August 31, 2011, raised the age limit for "designated community residents" to less than 40 years old, and clarified the definition of vocational rehabilitation referrals. The act also added "rural renewal county" to the places of residence for designated community residents. The law also adopted a revised definition of disabled veterans.

"Hurricane Katrina Employees"

In the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343), Congress extended the WOTC's expiration from August 28, 2007, to August 28, 2009, for firms who hire "Hurricane Katrina employees" to work in the disaster area.

111^th Congress

Temporary Expansion for Unemployed Veterans and Disconnected Youth

The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) temporarily expanded the credit to cover unemployed veterans and disconnected youth who begin working for an employer during 2009 or 2010. Unemployed veterans are persons discharged or released from active duty in the Armed Forces within five years of their hiring date and having received unemployment compensation for not less than four weeks during the one-year period ending on the hiring date. Disconnected youth are 16- to 24-year-olds who are not regularly attending school during the six-month period preceding the hiring date, not regularly employed within the same time frame, and "not readily employable by reason of lacking a sufficient number of basic skills."

The eligibility of disconnected youth expired after December 31, 2010. Veterans' eligibility for the WOTC would be modified and extended through the VOW to Hire Heroes Act (discussed in the next section).

Interaction with Payroll Tax Forgiveness

The Hiring Incentives to Restore Employment Act (HIRE Act; P.L. 111-147) provided payroll tax forgiveness to employers who hired certain unemployed individuals in 2010. Employers claiming the payroll tax forgiveness could not claim the WOTC for those wages associated with payroll tax forgiveness. Individuals hired after December 31, 2010, were not eligible for payroll tax forgiveness under the HIRE Act.

Extension to December 31, 2011

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended the WOTC through December 31, 2011.

112^th Congress

Expansion and Extension of Qualified Veterans Group

P.L. 112-56, the VOW to Hire Heroes Act, expanded the qualified veterans group covered by WOTC and changed the amount of first-year wages that can be claimed for the credit, such that

• for veterans who are members of a family receiving SNAP benefits for at least three months in the year prior to being hired, the maximum wages for the credit would be $6,000;
• for veterans who have been unemployed for an aggregate of at least four weeks, but less than six months, in the year prior to being hired, the maximum wages for the credit would be $6,000;
• for veterans eligible for disability compensation from the VA and within one year of discharge or release from active military duty when hired, the maximum wages for the credit would be $12,000;
• for veterans who have been unemployed for an aggregate of at least six months in the year prior to being hired, the maximum wages for the credit would be $14,000; and
• for veterans who are eligible for disability compensation from the VA and have been unemployed for an aggregate of six months or more in the year prior to being hired, the maximum wages for the credit would be $24,000.

P.L. 112-56 made the WOTC refundable for certain tax-exempt employers. For these employers, the refundable credit would be the lesser of the calculated WOTC for hiring veterans who qualify for the WOTC based on unemployment or the payroll taxes paid by the tax-exempt employer.

P.L. 112-56 extended the WOTC for qualified veterans to U.S. possessions with a tax system that mirrors the U.S. tax system, with the Secretary of the Treasury paying to the possession the amount lost to the possession in taxes because of the expansion of the WOTC for qualified veterans.²³

P.L. 112-56 also extended the expiration date of WOTC for veterans to December 31, 2012. This law did not extend authorization of the credit for nonveterans.

Extension to December 31, 2013

The WOTC for nonveterans lapsed after December 31, 2011, and the WOTC for veterans lapsed after December 31, 2012. Enacted on January 2, 2013, the American Taxpayer Relief Act of 2012 (P.L. 112-240) extended the WOTC for all eligible populations through December 31, 2013.

113^th Congress

The Tax Increase Prevention Act of 2014 (P.L. 113-295) retroactively extended the WOTC to cover all eligible employees who began work prior to December 31, 2014.

114^th Congress

The Protecting Americans from Tax Hikes Act of 2015 (Division Q of P.L. 114-113) expanded the WOTC to include long-term unemployment recipients (i.e., individuals who have been unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law at some point during that period) who begin work on or after December 31, 2015. The act extended the WOTC for all eligible populations through December 31, 2019.

115^th Congress

The Tax Technical Corrections Act of 2018 (Division U of P.L. 115-141) made several technical corrections to the WOTC. None of those changes generally affected eligibility for the credit, credit calculation, or the expiration date for the credit.

116^th Congress

The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of P.L. 116-94) extended the WOTC for all eligible populations through December 31, 2020.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of P.L. 116-260) extended the WOTC for all eligible populations through December 31, 2025.

Footnotes