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What is the Work Opportunity Credit?

The Work Opportunity Credit is a tax credit for employers that hire people from certain demographics who experience employment barriers. An employer can claim a credit for each year and each employee they hire in these demographics.

Who is Eligible for the Work Opportunity Credit?

  • Qualified IV-A recipients
  • Veterans 
  • Ex-felons
  • Designated community residents (DCRs)
  • Summer youth employees
  • Vocational rehabilitation referrals
  • Supplement security income (SSI) recipients
  • Supplemental Nutrition Assistant Program (SNAP) recipients
  • Qualified long-term unemployment recipients
  • Long-term family assistance recipients

Any person hired by the business who does not fall into these categories is ineligible for the credit. Additionally, these employees even if they fall into the categories above will be deemed ineligible:

  • Your dependents or relatives
  • Majority owners in the company
  • People who were formerly employed by your business, except for summer youth

What are the Hiring Qualifications?

  • Temporary, seasonal, part-time, and full-time workers who put in a minimum of 120 hours in their first 12 months of employment.
  • New employees who have not worked for the hiring employer at any other time
  • Any job type is acceptable

How to Claim the Work Opportunity Credit?

Employers must apply and receive a certificate that the employee is eligible before they claim the credit. The employer and employee must complete form 8850 on or before the new employees first day of employment. The employer has 28 days to submit the form to their local agency where they are located. The Department of Labor may request additional forms for verification. In order to claim the credit the business must file two forms with their tax return. The first form is form 3800 which allows the business to calculate the total amount of business credits they are eligible to claim for the year. The next form is for 5884 which is needed to calculate the amount of the Work Opportunity Credit the business can claim.

How much is the Work Opportunity Credit?

Employees who are eligible can receive either a 25% or 40% credit for their wages. If an employee works between 125-400 hours in the year they are eligible for the 25% credit. If the employee works 400+ hours they are eligible for the 40% credit.

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