Tax Credits for Hiring: WOTC, Empowerment Zone, and Other Employer Credits

Employer hiring tax credits:

1. Work Opportunity Tax Credit (WOTC), IRC 51:

• Credit amount: 40% of the first $6,000 in wages (= $2,400) for most targeted groups. 25% if the employee works at least 120 hours but less than 400 hours ($1,500).
• Long-term family assistance recipients: 40% of the first $10,000 in wages for each of the first two years (= $4,000/year, $8,000 total)
• Disabled veterans: 40% of the first $24,000 in wages (= $9,600) for veterans with service-connected disabilities who have been unemployed for at least 6 months
• Targeted groups: SNAP recipients, TANF recipients, designated community residents, vocational rehabilitation referrals, summer youth employees, qualified veterans, SSI recipients, ex-felons, long-term unemployment recipients
• Form 8850 deadline: the employer must submit Form 8850 to the State Workforce Agency (SWA) within 28 calendar days of the employee’s start date. Late submission = no credit.
• Certification: the SWA certifies whether the employee qualifies. The employer claims the credit on Form 5884 with their tax return.

2. Empowerment Zone Employment Credit (IRC 1396):

• 20% of the first $15,000 in wages (= $3,000 per employee) for employees who live and work in a designated empowerment zone
• This credit has been extended and expired multiple times; check current authorization status

3. Indian Employment Credit (IRC 45A):

• 20% of qualified wages and health insurance costs above a base amount for employees who are enrolled members of an Indian tribe and work on or near an Indian reservation
• Maximum qualified wages for the credit: $20,000 per employee per year

4. Disabled Access Credit (IRC 44):

• Small businesses (under $1M in revenue or 30 or fewer full-time employees) that incur expenses to accommodate employees or customers with disabilities
• 50% of eligible expenditures between $250 and $10,250 (max credit: $5,000)
• Covers barrier removal, sign language interpreters, accessible technology, readers

5. Small Employer Health Insurance Credit (IRC 45R):

• Employers with fewer than 25 FTE employees and average wages under $58,000 (2023 figure, indexed)
• Must contribute at least 50% of the premium for single coverage
• Credit: up to 50% of employer-paid premiums (25% for tax-exempt employers)
• Available for two consecutive years only