The Work Opportunity Tax Credit (WOTC) offers a valuable opportunity for businesses to gain financial benefits by hiring employees from targeted groups. Currently, the WOTC remains intact under the 2025 Tax Reconciliation Act. Still, it is slated to expire on December 31, 2025, based on existing legislation authorized under the Consolidated Appropriations Act of 2021.
Planning ahead can ensure that you maximize the benefits available through the WOTC.
1. What Is WOTC and Why Small Businesses Should Care
WOTC is a federal tax credit for employers who hire individuals from specific “targeted groups,” such as:
- Veterans
- Long-term unemployed individuals
- Recipients of SNAP or SSI benefits
Employers can receive:
- 25% of first-year wages if the employee works 120–399 hours
- 40% if they work 400+ hours
Credits can reach up to $2,400 per eligible hire and even up to $9,600 for veterans.
2. Why WOTC Might Expire Or Be Renewed
WOTC is currently authorized through December 31, 2025. Congress has the ability to renew or make it permanent. H.R. 1177, for example, proposes to modernize and extend WOTC.
3. How Businesses Can Maximize WOTC
Steps to Claim:
- Pre-screen with IRS Form 8850 within 28 days of hire
- Obtain certification from your state workforce agency
- File IRS Form 5884 (or 5884-C for nonprofits hiring veterans)
Key Notes:
- Minimum 120 hours worked required
- Cannot double-dip with other credits on the same wages
- Unused WOTC can be carried forward for 20 years or back 1 year
4. What WOTC’s Expiration Means for Employers and Employees
Employers:
- Cannot claim the credit for hires after December 31, 2025, unless extended
- Certification forms must be submitted within 28 days of hire
Employees:
- WOTC encourages employers to hire from targeted groups, such as veterans, long-term unemployed individuals, and SNAP/SSI recipients, by providing tax credits.
- If the program expires on December 31, 2025, employers may face reduced incentives to hire from these groups, though the impact on job opportunities is uncertain. Stay informed about potential extensions, such as H.R. 1177, which proposes to enhance and extend WOTC.
5. Why WOTC Still Matters Under the 2025 Tax Plan
Although the 2025 Act introduces new changes (e.g., bonus depreciation, Section 179 expansion), it leaves WOTC untouched. That means it’s still one of the only hiring-based incentives available to small businesses in:
- Food service
- Retail
- Healthcare
- Landscaping
6. What Needs to Happen for WOTC to Continue After 2025
- Temporary Extension: Congress may renew it again for short terms
- Permanent Authorization: A bill like H.R. 1177 could codify it into the tax code
- Program Expansion: Future legislation may add new eligible groups or raise the credit limits
Stay updated on proposals and act early to secure credits for current hires.
7. FAQs
- Are nonprofits eligible? Yes, but only for hiring qualified veterans. Use Form 5884-C.
- What if an employee quits before 120 hours? You can’t claim the credit.
- Can I claim WOTC and Childcare Credit for the same person? Yes, if both requirements are met.
- What records should I keep? Form 8850, state certification, payroll showing hours/wages. Keep for at least 4 years.
How Worksite Can Help
At Worksite, we help small businesses stay compliant and capture every tax credit available:
- Automated WOTC screening and timely Form 8850 submission
- Payroll systems that track hours and qualifying wages
- Organized, audit-ready documentation
- Access to tax professionals for additional support
Whether hiring seasonal or full-time staff, Worksite simplifies the paperwork so you can stay focused on growing your business.
Final Thought
The WOTC can reduce your tax liability by thousands per employee. But with its expiration date approaching, acting now and staying informed is the key to fully leveraging it before potential changes or cuts.
