Work Opportunity Tax Credit (WOTC): How Hiring Veterans and Other Target Groups Reduces Your Tax Bill

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

The Work Opportunity Tax Credit (WOTC) under IRC 51 provides a direct tax credit to employers who hire individuals from specific target groups that face barriers to employment. The credit ranges from $1,200 to $9,600 per qualified employee, depending on the target group and hours worked. For veterans, the credit can reach $9,600 (a disabled veteran who has been unemployed for 6+ months and earns at least $24,000 in the first year). For most other groups, the maximum credit is $2,400 per hire (40% of up to $6,000 in first-year wages, for employees working 400+ hours). The credit has been extended repeatedly and is currently available through 2025. Employers must pre-screen candidates using Form 8850, submitted to their State Workforce Agency (SWA) within 28 days of the employee’s start date.

✓Key takeaway

WOTC target groups and maximum credits:

Target Group	Maximum First-Year Wages Counted	Credit Rate	Maximum Credit
Disabled veteran (unemployed 6+ months)	$24,000	40%	$9,600
Veteran (unemployed 6+ months)	$14,000	40%	$5,600
Disabled veteran (not long-term unemployed)	$12,000	40%	$4,800
Veteran (SNAP recipient)	$6,000	40%	$2,400
Long-term family assistance (TANF 18+ months)	$10,000 (Year 1) + $10,000 (Year 2)	40% + 50%	$9,000 (over 2 years)
SNAP (food stamps) recipient (18-39)	$6,000	40%	$2,400
SSI recipient	$6,000	40%	$2,400
Ex-felon	$6,000	40%	$2,400
Designated community resident (empowerment zone)	$6,000	40%	$2,400
Vocational rehabilitation referral	$6,000	40%	$2,400
Summer youth employee (16-17, in empowerment zone)	$3,000	40%	$1,200
Long-term unemployment recipient (27+ weeks)	$6,000	40%	$2,400

Hours-worked requirement:

Hours Worked	Credit Rate
Under 120 hours	No credit
120-399 hours	25% of wages (instead of 40%)
400+ hours	40% of wages (full credit)

Process to claim WOTC:

Step	Action	Deadline
1	Pre-screen candidate: have them complete Form 8850 (on or before the job offer date)	Before or on offer date
2	Submit Form 8850 + ETA Form 9061 or 9062 to State Workforce Agency	Within 28 days of start date
3	SWA certifies the employee as a qualifying target group member	2-6 weeks
4	Track first-year wages and hours worked	Ongoing
5	Claim credit on Form 5884 with the business tax return	With annual return

How much can the WOTC save a small business?

Hypothetical example

Round numbers. For current guidance, see IRS Employer Tax Guide. A construction company. S-Corp. Hires 4 new employees in 2025.

New hires and WOTC qualification:

Employee	Target Group	First-Year Wages	Hours Worked	Credit Calculation
Employee A	Disabled veteran (6+ months unemployed)	$45,000	2,000+	40% x $24,000 = $9,600
Employee B	SNAP recipient (age 25)	$35,000	2,000+	40% x $6,000 = $2,400
Employee C	Ex-felon	$38,000	2,000+	40% x $6,000 = $2,400
Employee D	No target group qualification	$40,000	2,000+	$0

Total WOTC credit: $14,400

Item	Amount
Total WOTC credit	$14,400
Less: reduction in wage deduction (IRC 280C)	($14,400) from wage deduction
Net tax savings (at 24% rate)	$14,400 credit - ($14,400 x 24% lost deduction) = $14,400 - $3,456 = $10,944

The WOTC requires reducing the wage deduction by the amount of the credit (IRC 280C). Alternatively, the employer can elect a reduced credit (the credit minus the tax benefit of the lost deduction). Either way, the net benefit is the credit amount minus the tax value of the lost deduction.

Or the simpler election (reduced credit, IRC 280C(c)):

Employee	Full Credit	Reduced Credit (credit x (1 - tax rate))
Employee A	$9,600	$9,600 x (1 - 0.24) = $7,296
Employee B	$2,400	$2,400 x (1 - 0.24) = $1,824
Employee C	$2,400	$2,400 x (1 - 0.24) = $1,824
Total reduced credit		$10,944

Same result either way. The employer saves $10,944 in federal taxes simply by pre-screening new hires and submitting the paperwork.

The 28-day deadline trap: The employer hires Employee A on March 1. Form 8850 must be submitted to the SWA by March 29. If submitted on March 30: the credit is lost entirely. There is no late-filing relief.

Best practice: include Form 8850 in the new-hire paperwork packet. Have every new employee complete it on or before the first day. Submit immediately. The SWA determines qualification; the employer just submits the form.

Who qualifies more often than you’d think: Many new hires qualify without the employer realizing it. The most commonly encountered target groups for small businesses:

Group	How Common	How to Identify
SNAP recipients	Very common in hourly/trade positions	Form 8850 question: “Have you received SNAP benefits in the past 6 months?”
Long-term unemployment (27+ weeks)	Common in economic downturns	Form 8850 question: “Were you unemployed for 27+ consecutive weeks and received unemployment compensation?”
Ex-felons	More common than expected	Form 8850 question: “Were you convicted of a felony and hired within 1 year of conviction or release?”
Veterans	Common in construction, trades, security	Form 8850 questions about military service and unemployment

Practical approach: Include Form 8850 in every new hire’s paperwork. It costs nothing to submit. If the employee doesn’t qualify, nothing happens. If they do, the employer receives a credit of $1,200 to $9,600. The only cost is the time to submit the form (5-10 minutes per hire).

For a company hiring 10 employees per year, if just 2 qualify for the $2,400 credit: that’s $4,800 in credits (approximately $3,648 net savings) per year, every year. Over 5 years: $18,240 in cumulative tax savings.

Illustrative numbers only, not a real client and not advice for your facts.

Related guides:

How does the small business health care tax credit work?

The small business health care tax credit under IRC 45R provides up to 50% of employer-paid premiums (35% for tax-exempt employers) for businesses that cover at least 50% of employee-only premium costs. To qualify, you must have fewer than 25 full-time equivalent employees with average annual wages below $58,000 (2025, indexed), and you must purchase coverage through the SHOP marketplace. The credit is calculated on a sliding scale, with the maximum credit available only to employers with 10 or fewer FTEs and average wages of $29,000 or less. You can claim this credit for only two consecutive tax years, so timing the credit to coincide with your highest premium costs maximizes its value. The credit is claimed on Form 8941 and reduces your tax liability directly.

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Cite this page

Yarik Yarosh, CPA. "Work Opportunity Tax Credit (WOTC): How Hiring Veterans and Other Target Groups Reduces Your Tax Bill." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-hiring-veterans-wotc-tax-credit

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.