Breaking Barriers. Building Futures.

An estimated 70 million people in the U.S. have an arrest or conviction record, and over 600,000 men and women are released from jail each year. Connecting the formerly incarcerated with employment is critical, as it provides a secure income, stability, and a connection with other members of society.

Successfully reintegrating these individuals brings many advantages. One of those advantages is the Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.

What are the parameters?

The WOTC may be claimed by any employer that hires eligible “ex-felons” within a year of being convicted of a felony or being released from prison from the felony.

In general, the WOTC is equal to 40% of up to $6,000 of wages paid to or incurred on behalf of, an individual who:

• is in their first year of employment;
• is certified as being a member of a targeted group;
• performs at least 400 hours of services for that employer; and
• begins work on or before December 31, 2025.

The maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. An employer cannot claim the WOTC for employees who are rehired. In general, taxable employers may carry the current year’s unused WOTC back one year and then forward 20 years.

How do I claim this credit?

The WOTC is a general business credit. The credit is limited to the amount of the business income tax liability or Social Security tax owed.

1. On or before the day that an offer of employment is made, the employer and the job applicant must complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit).

Note: The employer has 28 calendar days from the new employee’s start date to submit Form 8850 to the designated local agency located in the state in which the business is located (where the employee works). Additional forms may be required by the Department of Labor to obtain certification.

2. After receiving a certification from the designated local agency that the employee is a member of one of the 10 targeted groups, taxable employers file Form 5884 (Work Opportunity Credit) to claim the WOTC.

A taxable business may apply the credit against its business income tax liability, and the normal carry-back and carry-forward rules apply. See the instructions for Form 3800 for more information.

For qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to all employees for the period the credit is claimed.