Yes, the credit you are referring to is indeed the Work Opportunity Tax Credit (WOTC). The WOTC is a federal tax credit available to employers who hire individuals from specific targeted groups that face significant barriers to employment. These targeted groups include:
The WOTC provides a financial incentive to employers by offering a tax credit that is generally equal to 40% of the qualified first-year wages paid to these employees, provided they work at least 400 hours during their first year of employment. For employees who work between 120 and 400 hours, the credit is reduced to 25% of the qualified first-year wages.
To claim the WOTC, employers must pre-screen and obtain certification from their state workforce agency (SWA) that the individual is a member of a targeted group. This involves completing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day a job offer is made, and submitting it to the SWA within 28 days after the individual begins work.
The WOTC is available for wages paid to eligible individuals who begin work on or before December 31, 2025. The credit is limited to the amount of the business income tax liability or social security tax owed, and normal carryback and carryforward rules apply. For tax-exempt organizations, the credit is available for hiring qualified veterans and is claimed against the employer's share of social security tax using Form 5884-C.
Sources:
Work Opportunity Tax Credit: A Helping Hand for Job Seekers
Instructions for Form 8850 (03/2021)
§ 51. Amount of credit
IRS Will Propose FTC Regs on Tax Decrees With Puerto Rico
Publication 1693 (10/2023)
Does the Tax Code Really Encourage Entrepreneurship?
