CLIENT KNOWLEDGE BASE

    Work Opportunity Tax Credit (WOTC)

    The Work Opportunity Tax Credit (WOTC) is a federal program that rewards employers for hiring individuals from certain targeted groups who face barriers to employment. The credit ranges from $2,400 up to $9,600 per eligible employee, depending on the employee category, wages paid, and hours worked.

    When systemized, WOTC becomes a repeatable part of your hiring process and can generate meaningful annual tax savings.


    1. 1

      How WOTC Works

      • The employee completes IRS Form 8850 during onboarding.
      • Your HR or payroll team submits the form (and any required state form) to the state workforce agency within 28 days of the employee’s start date.
      • If the employee is certified as eligible, you may claim a federal tax credit based on qualified wages paid during their first year of employment.
      The minimum to qualify is 120 hours worked. Credits increase at 400 hours worked.
    2. 2

      Eligible Employee Categories and Credit Amounts

      1. Qualified IV-A Recipient (TANF)
        • Hired from families receiving Temporary Assistance for Needy Families.
        • Credit: Up to $2,400.
      2. Qualified Veteran
        • Several veteran categories apply:
          • Unemployed at least 4 weeks but less than 6 months: Up to $2,400.
          • Unemployed at least 6 months: Up to $5,600.
          • Disabled veteran hired within 1 year of discharge: Up to $4,800.
          • Disabled veteran unemployed at least 6 months: Up to $9,600.
      3. Ex-Felon
        • Hired within 1 year of conviction or release.
        • Credit: Up to $2,400.
      4. Designated Community Resident (DCR)
        • 18–39 years old, living in Empowerment Zones, Enterprise Communities, or Renewal Communities.
        • Credit: Up to $2,400.
      5. Vocational Rehabilitation Referral
        • Referred to employer by a rehab program, including veterans with service-related disabilities.
        • Credit: Up to $2,400.
      6. Qualified Summer Youth Employee
        • Ages 16–17, hired for summer work only, living in Empowerment Zones.
        • Credit: Up to $1,200.
      7. SNAP Recipient
        • Ages 18–39, member of a family receiving SNAP benefits.
        • Credit: Up to $2,400.
      8. SSI Recipient
        • Receiving Supplemental Security Income benefits.
        • Credit: Up to $2,400.
      9. Long-Term Family Assistance Recipient
        • Member of a family that has received TANF for at least 18 months.
        • Credit: Up to $9,000 over two years ($4,000 first year, $5,000 second year).
      10. Long-Term Unemployed Recipient
        • Unemployed at least 27 consecutive weeks and receiving unemployment compensation.
        • Credit: Up to $2,400.
    3. 3

      Why This Matters for Business Owners

      1. Credits reduce your tax bill dollar-for-dollar if you has a pass through business.
      2. WOTC creates a measurable return on your hiring practices.
      3. Many qualifying hires happen naturally — but without a system, the credits are lost.
    4. 4

      How to Systemize WOTC in Your Business - The Anomaly Checklist

      1. Integrate into Hiring – Include Form 8850 in onboarding paperwork.  This is 100% necessary and crucial
      2. Automate – Use a real payroll system that integrates WOTC
      3. Track – Maintain a dashboard of hires, certifications, and expected credits.
      4. Maximize – Encourage retention so employees meet the 400-hour threshold.
      5. Capture and File – Provide certifications and wage reports to us so we can claim the credit on your tax return.
      6. Repeat – Treat WOTC as an ongoing hiring activity.  No limits.
    5. 5

      HR and Payroll Checklist for WOTC Compliance

      Hiring Stage
      • Provide Form 8850 to every new hire during onboarding.  They are not legally required to complete.
      • Collect completed Form 8850 on or before the employee’s first day.  THIS IS CRUCIAL!
      Submission Stage
      • Submit Form 8850 (and state forms) to the state workforce agency within 28 days of hire.
      • Retain copies and submission confirmations.
      Tracking Stage
      • Maintain a log of new hires and their WOTC submission status.
      • Monitor certifications received from the state.
      Payroll Stage
      • Track hours and wages for certified employees.
      • Flag qualifying wages in payroll for accurate reporting.
      Tax Filing Stage
      • Forward certifications and wage data to Anomaly CPA at year-end.
      • Confirm credits are claimed on your business tax return (we take care of this)

       

      Questions?  Reach out to your Tax PM on Soraban!
    If you still have a question, we’re here to help. Contact us