You pour your heart into your business—late nights, early mornings, juggling clients, payroll, and marketing. You track every expense, hunt for every deduction, and still feel like you’re leaving money on the table come tax time.
What if I told you there’s a tax credit so powerful it can slash your tax bill by thousands of dollars—yet most small business owners have never even heard of it?
Enter the Work Opportunity Tax Credit (WOTC): an under-the-radar credit designed to reward businesses for hiring from specific “target groups” that face employment barriers. It’s 100% legal, IRS-approved, and often forgotten in the flurry of year-end bookkeeping.
In this post, we’ll dive into:
- What the WOTC is and why it matters
- Who qualifies and how to spot eligible hires
- How to claim the credit—step by step
- Common pitfalls and how to avoid them
- Next steps to put this secret tax credit to work for you
Grab a cup of coffee—and let’s make sure you never miss out on another dime of tax savings.
What Is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit is a federal incentive that rewards employers for hiring individuals from certain groups that historically face employment challenges. These “target groups” include:
- Veterans
- Long-term unemployment recipients
- Ex-felons
- Food stamp (SNAP) recipients
- Designated community residents
- Vocational rehabilitation referrals
- Supplemental Security Income (SSI) recipients
- Summer youth employees in Empowerment Zones
For each eligible hire, you can claim a credit equal to 25%–40% of that employee’s first-year wages, up to a maximum credit of $9,600 per employee. That means if you bring on the right person at the right wage, you could see thousands back on your bottom line.
Why It’s Overlooked
- Complex eligibility rules: Many business owners assume the paperwork is too complicated.
- Awareness gap: CPAs focus on deductions, and many tax software packages hide WOTC behind extra clicks.
- Timing: You must complete certain pre-hire screenings within tight windows—easy to miss if you’re not looking.
But for those who take the time to understand and implement it, the WOTC can be a game-changer.
Sign #1: You’re Hiring from Target Groups
If you’re already recruiting from diverse or non-traditional talent pools—veterans, formerly incarcerated individuals, or community programs—you likely have WOTC-eligible hires without realizing it.
Ask yourself:
- Do you have employees who receive SNAP benefits?
- Have you hired any veterans in the past year?
- Do you partner with local workforce development or vocational rehab programs?
If the answer is “yes” to any of these, you’re sitting on an untapped tax credit.
Sign #2: You Struggle with High Turnover
High turnover can erode profits faster than any bad quarter. But WOTC isn’t just about reducing your tax bill—it’s about broadening your hiring pool to groups eager to excel.
Why it matters:
- Businesses that recruit from target groups often see higher retention, since these employees value the opportunity.
- The extra screening and support programs that accompany WOTC can lead to stronger onboarding and better performance.
If turnover is a constant headache, WOTC could help you attract and keep dependable team members—while simultaneously rewarding you at tax time.
Sign #3: You’re Not Fully Leveraging Tax Credits
Most small business owners know about common credits—like the R&D Tax Credit or Section 179 deductions—but fail to explore niche incentives like WOTC. If your CPA hasn’t asked about it in the last two years, you’ve likely missed out.
Clue to look for:
- Your annual tax review focuses solely on expenses and depreciation.
- You’ve never heard of “target group” hires.
- You didn’t complete IRS Form 8850 or ETA Form 9061/9062 when onboarding.
If tax season feels repetitive—same deductions, same credits—it’s time to expand your toolkit.
How to Claim the WOTC: A Step-by-Step Guide
1. Pre-Screen Candidates with IRS Form 8850
- When: On or before the date you offer the job
- What: Candidate completes Form 8850 (Pre-Screening Notice and Certification Request)
2. Complete Department of Labor Forms
- ETA Form 9061 (Individual Characteristics Form) or ETA Form 9062 (Conditional Certification)
- Submit both forms to your state workforce agency within 28 days of the employee’s start date
3. Receive Certification
- Your state agency will review and certify which hires qualify under WOTC
- Note: Processing times vary by state, so act fast
4. File for the Credit on Your Tax Return
- Use Form 5884 (Work Opportunity Credit) when filing your business’s income tax return
- Include Form 3800 (General Business Credit) to carry forward unused credits, if needed
5. Keep Thorough Records
- Maintain copies of all WOTC-related forms for at least four years
- Track wages paid to each qualified employee to calculate the exact credit amount
Avoid These Common Pitfalls
- Missing Deadlines
- Pre-screen late? You lose eligibility. Use digital onboarding reminders to stay on track.
- Incomplete Documentation
- Half-filled forms won’t pass muster. Double-check every field before submission.
- Assuming All Employees Qualify
- Only “target group” hires count. Don’t lump all new hires together.
- Neglecting State Variations
- Each state workforce agency may have unique procedures. Confirm local requirements.
Real-World Impact: One Business’s Story
Meet Sarah, owner of a growing landscaping company. She hired two veterans last year but never pre-screened them for WOTC. After learning about the credit, she:
- Retrospectively completed Form 8850 for her hires (where state rules allowed)
- Claimed a combined credit of $5,600 on her last tax return
- Rolled that savings into new lawn-care equipment, boosting productivity by 20%
That’s money she didn’t have to borrow—and a team that values her business even more.
Next Steps: Make WOTC Work for You
- Audit Your Recent Hires
Review your last 12 months of onboarding. Identify any employees from target groups. - Train Your HR Team
Build WOTC pre-screening into your hiring process so you never miss another opportunity. - Partner with a WOTC Specialist
Consider working with a payroll provider or tax professional who automates WOTC processing for you.
Final Thoughts
The Work Opportunity Tax Credit is a secret weapon in your small-business arsenal. It turns the challenge of finding great talent into a tax-saving opportunity—while supporting deserving individuals in your community.
If you’ve been leaving WOTC on the table, you’re not alone. But now that you know about it, you can seize every dollar you deserve.
Ready to add thousands back to your bottom line—and build a stronger, more diverse team? Start implementing WOTC today, and let your next tax return be your best one yet.
Want help integrating WOTC into your hiring process and taxes? Let’s talk strategy. Click on Contact in the top right corner to get started!
