Work Opportunity Tax Credit (WOTC)

Who qualifies

• Any US employer (any legal structure, any size) that pays wages subject to federal income tax — including C-corps, S-corps, partnerships, sole proprietors, and LLCs
• Tax-exempt organizations are eligible for a special version (Form 5884-C) but ONLY for hiring qualified veterans — not other target groups
• Must hire a member of one of the 10 federally designated target groups (see target group list)
• Employee must work at least 120 hours in the first year (120–399 hours = 25% credit rate; 400+ hours = 40% credit rate)
• Employee must not be a relative or dependent of the employer
• Employee must not have worked for the same employer previously
• Employee must be a new hire (not a rehire from prior employment with same employer)
• Pre-screening via Form 8850 must be completed and submitted to the State Workforce Agency (SWA) within 28 calendar days of the employee's first day of work — no exceptions

What it covers

How to apply

1. 1

   Pre-screen employee on or before their start date

   Employee completes IRS Form 8850 (Pre-Screening Notice and Certification Request) and signs it. This must happen before or on the employee's first day of work. Many employers also use DOL Form 9061 or 9062 at this step to gather supporting documentation for the SWA.

   ~0.25 hrs

2. 2

   Submit Form 8850 to your State Workforce Agency within 28 days

   Mail or upload the completed Form 8850 (and supporting form 9061 or 9062) to your state's SWA no later than the 28th calendar day after the employee's start date. This is an absolute hard deadline — missing it permanently forfeits the credit for that hire, with no appeal process. Each state SWA has its own submission portal or mailing address.

   ~0.5 hrs

3. 3

   Receive SWA certification (ETA Form 9062)

   The SWA reviews the employee's eligibility documentation and issues an ETA Form 9062 certification if the employee qualifies. Processing time varies widely by state — typically 30 to 120+ days. Some SWAs have significant backlogs. Track all pending certifications; the credit cannot be claimed without official certification.

   ~0 hrs

4. 4

   Track qualified wages through the first year (and second year for LTFAR)

   Maintain payroll records showing hours worked and wages paid to each certified employee. Most groups yield credit on first-year wages only. Long-term Family Assistance Recipients (LTFAR) generate credit on both first-year AND second-year wages (up to $10,000 per year, each year). The credit percentage (25% or 40%) depends on hours worked.

   ~1 hrs

5. 5

   Claim the credit on Form 5884 with your annual tax return

   Complete IRS Form 5884 (Work Opportunity Credit) listing each certified hire, their target group, and qualified wages. The credit flows through Form 3800 (General Business Credit) to your federal income tax return (1040, 1120, 1065, 1120-S). The credit is nonrefundable — it can offset income tax liability to zero, with unused credits carried back 1 year or forward 20 years. Tax-exempt orgs use Form 5884-C instead, filed separately after the payroll tax return.

   ~2 hrs

Deadline & timing

The 28-day Form 8850 pre-screening window is a hard administrative deadline — missing it permanently forfeits the credit for that hire. SWA certification can take 30–90+ days after submission; employers claim the certified credit on Form 5884 with their annual income tax return. Tax-exempt organizations (veterans only) claim via Form 5884-C against payroll taxes.

Programs that stack well

• Research & Development Tax Credit (Section 41)
• Federal Bonding Program
• Veteran Employment Tax Credit

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