If you own a business and need more employees, there’s a program called the work opportunity tax credit that can offer you benefits. This credit is designed to encourage you to hire individuals who face difficulties in finding employment. It has been extended until the end of 2025.
Here are the ten groups of people who qualify for this program:
- People Receiving Temporary Assistance for Needy Families.
- Veterans who are unemployed or disabled.
- Formerly incarcerated individuals.
- Community residents living in Empowerment Zones or Rural Renewal Counties.
- Individuals referred by vocational rehabilitation programs.
- Summer youth employees living in Empowerment Zones.
- People receiving Supplemental Nutrition Assistance Program benefits.
- Individuals receiving Supplemental Security Income.
- Families who have been receiving long-term assistance.
- Individuals who have been unemployed for a long time.
To claim the credit, employers need to get certification that an individual belongs to one of these targeted groups. They can do this by submitting a form called IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency within 28 days after the eligible worker starts their job. This form should not be sent to the IRS. If you have any questions about the form, reach out to your state workforce agency for assistance.
Once an employer receives certification, then they can calculate the credit based on the wages paid to eligible workers during their first year of employment. The credit is claimed on the federal income tax return using Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit.
There is a special rule for tax-exempt organizations. They can claim the credit if they hire qualified veterans who started working for them between 2020 and 2026. These organizations can claim the credit against their payroll taxes using Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations.
It is highly important to note that the credit is limited to the business’ income tax liability for taxable businesses. Any remaining credit can be carried back or forward according to the usual rules. For qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to qualifying employees.
