Work Opportunity Tax Credit (WOTC)
Frequently Asked Questions (FAQs)
What is WOTC?
WOTC (Work Opportunity Tax Credit) is a federal tax credit available to employers who hire and retain veterans and/or individuals from other target groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.
What Workers can Employers Claim WOTC for?
- Temporary Assistance for Needy Families (TANF) Recipients
- Supplemental Nutrition Assistance Program recipients (also known as SNAP or food stamps)
- Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
- Vocational Rehabilitation Referral
- Supplemental Security Income (SSI) Recipients
- Summer Youth Employee (living in Empowerment Zones)
- Long Term Unemployed (LTUR)
How is the Tax Credit Calculated?
The amount of the tax credit depends upon: the target group of the individual hired; the wages paid to that individual in the first year of employment; and the number of hours that individual worked. There is also a maximum tax credit that can be earned.
For long-term Temporary Assistance for Needy Families (TANF) applicants, credit is available to employers who hire members of this group for up to a two-year period.
- In the first year, the employer may claim a tax credit equal to 40% of the first-year wages, up to the maximum tax credit, if the individual works at least 400 hours.
- In the second year, the employer may claim a tax credit equal to 50% of the second-year wages, up to the maximum tax credit, if the individual works at least 400 hours.
For all other target groups, the credit is available to employers who hire members of these groups, based on the individual's hours worked and wages earned in the first year.
- If the individual works at least 120 hours, the employer may claim a tax credit equal to 25% of the individual's first year wages, up to the maximum tax credit.
- If the individual works at least 400 hours, the employer may claim a tax credit equal to 40% of the individual's first year wages, up to the maximum tax credit.
How Many Individuals Can an Employer Hire to Qualify for WOTC?
There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.
How do Employers Submit WOTC Certification Requests?
Certification requests can be submitted either through IDES’ online portal or through the U.S. Mail to:
33 S. State St., 10th Floor
Chicago, IL 60603
For security reasons, WOTC certification requests are not accepted via email or fax.
How Do Employers Apply for WOTC Tax Credits?
Employers submit forms to the IRS when they file their federal tax returns. The first step of the process is to verify that the individuals fall into the specific categories. The certification requests are submitted to IDES either online or via US Mail.