The Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals from eligible target groups with significant barriers to employment. Each year, employers claim over $1 billion in tax credits under the WOTC program. Employers can earn a credit of $1,200 to $9,600 per employee, depending on the target group of the new employee and the number of hours worked in the first year.
We have created this page to give you information on implementing WOTC in your workplace and have also included many useful links to forms and other government resources. Wherever we mentioned a form, we have linked to the form for you to download. Because we are based in California, we have provided some California-specific information on this page. For those of you outside of California, we encourage you to reach out to your State Workforce Agency (SWA) for more information on WOTC and on programs that may be available in your state.
Who is eligible for WOTC?
WOTC covers the following target groups:
- Formerly incarcerated
- Temporary Assistance for Needy Families (TANF) recipients
- SNAP (food stamp) recipients
- Residents of designated communities
- Vocational rehabilitation referrals
- Supplemental Security Income recipients
- Summer youth employees
- Long-term unemployment recipient (hired on or after January 1, 2016)
Employees must work at least 120 hours in the first year of employment to be eligible for WOTC. To learn more about the target groups, read the Department of Labor's information on target group eligibility.
How do I apply for WOTC?
We have put together detailed instructions below, but do not be intimidated by all the information below. The process is actually simple and can become routine once you add the forms into your current application and hiring process.
- Instruct job applicants to complete IRS Form 8850 on or before the day the offer is made. This form allows applicants to self identify as part of a WOTC target group. Make Form 8850 part of the application process, so applicants fill it out as part of the application for employment. The IRS has provided instructions for Form 8850 to give you more information. (See the next question about best practices for tips on how to include Form 8850 in your process.)
- Complete ETA Form 9061 if the new hire has identified themselves as part of a WOTC target group. This form includes instructions about what type of supporting documentation the employee must provide.
- If the employee has already been conditionally certified as belonging to a WOTC target group, complete ETA Form 9062 instead of ETA Form 9061. You will know if an employee has been conditionally certified if they indicate so on IRS Form 8850.
- If the new hire is WOTC eligible because they are a long-term unemployment recipient, they will need to complete ETA Form 9175.
- Within 28 calendar days of the employee's start date, submit the completed IRS and ETA forms to your State Workforce Agency (SWA). In California, our SWA is the Employment Development Department (EDD), and forms can be mailed to them at WOTC Center, 2901 50th St., Sacramento CA 95817. The EDD also has an online system for employers submitting WOTC forms.
- If you are outside of California, check the Department of Labor's WOTC page to find your SWA.
- Wait for the final determination from your SWA. The determination will state whether the eligible employee meets the requirements for WOTC.
- Employees must work at least 120 hours during their first year with an employer to qualify for WOTC.
- Once you have a determination letter that states the employee is WOTC eligible, file for the tax credit with the IRS. You can use IRS Form 5884 to file for the credit.
- If you are a tax-exempt organization that hires an employee in the WOTC veteran target group, you should use IRS Form 5884-C.
What are some best practices for implementing WOTC in my workplace?
Some employers may be hesitant to ask the questions on IRS Form 8850 for fear that asking about someone’s WOTC eligibility could uncover protected information. There is no need to worry though!
The questions on IRS Form 8850 were written with the intent to keep employees from asking questions that are unlawful. In fact, the WOTC form is designed to encourage the hiring of eligible individuals, so the information provided is to an applicant’s benefit.
There are companies that can manage WOTC paperwork for you electronically. If you are a medium or large employer, it might be beneficial to use this type of service. Automating the process will save you time and the hassle of extra paperwork. One such solution is Walton Management Services, Inc., and you can also shop around for other companies that offer WOTC processing services. Most will integrate seamlessly with your current online application system.
Where can I learn more about WOTC and find the WOTC forms?
All of the relevant WOTC forms are linked above. We have also provided some useful links to government sites below.
The US Department of Labor's WOTC information page for employers
The US Department of Labor's Employer’s Guide to the WOTC
The California Employment Development Department (EDD) Employer Guide
For those outside of California, find your State Workforce Agency (SWA) here. This page provides contact information for your SWA and the WOTC websites for each state.
Are there other tax incentives available to employers who hire the formerly incarcerated?
Some states offer additional incentives to employers. California offers the New Employment Tax Credit (NEC). This additional tax credit is managed by the California Governor’s Office of Business and Economic Development.
The NEC rewards employers who pay a livable wage in select regions of California with the highest poverty and unemployment rates. The NEC is available for each taxable year beginning on or after January 1, 2014, and before January 1, 2021, to a qualified taxpayer who hires a qualified full-time employee within that date range.
Employers who hire qualified employees can receive the credit for employees who earn between 150% and 350% of the minimum wage. Employees must be full-time salaried or work at least 35 hours per week. For more information, visit the Franchise Tax Board’s page on the NEC.
What about Federal Fidelity Bonding?
Bonding is provided by the U.S. Department of Labor and the California EDD and is free for the employer and employee and covers the first six months of employment for at-risk, hard-to-place job seekers. This includes the formerly incarcerated. Bonds range from $5,000 to $15,000. Both part-time and full-time employees are eligible. For more information, visit the US Department of Labor's page on Federal Fidelity Bonding. California employers can also contact their local EDD office for more information. To apply in California, contact the California State Bonding Services Coordinator at 916-645-7799 or firstname.lastname@example.org.
We have provided these resources for informational purposes only. Companies looking to change their hiring processes should consult with an attorney if they have questions about legal requirements when hiring new employees. We also recommend talking to an accountant if you have questions about tax incentives and your specific tax situation.