What Is the Work Opportunity Tax Credit

What Is the Work Opportunity Tax Credit?

• 03/12/2026

For decades, policymakers have looked for ways to expand opportunities in the workforce while helping businesses meet their hiring needs. One program designed to do both is the Work Opportunity Tax Credit (WOTC) - a federal tax credit that encourages employers to hire individuals who face barriers to employment.

Created in the 1990s, WOTC has become an important tool for connecting people from targeted groups with jobs while helping employers offset some of the costs associated with hiring and training new workers.

WOTC (pronounced like "Watt" + "Sea") was established in 1996 through the Small Business Job Protection Act. It replaced an earlier program known as the Targeted Jobs Tax Credit, which operated from 1978 to 1994 and aimed to encourage employers to hire individuals who faced challenges entering the workforce.

Since its creation, Congress has repeatedly extended the program for limited periods of time, often renewing it as part of broader tax or budget legislation.

Through each renewal, the program has maintained the same core purpose: helping individuals who face employment barriers connect with meaningful job opportunities.

Many capable workers struggle to find employment because of circumstances that make it harder for them to secure a job, even when businesses are actively hiring.

For example, veterans who needed time to recover from an injury may lack recent work experience. An individual who was recently released from being incarcerated may struggle to find work in a community that changed since before the sentence. The credit is designed to create opportunities for individuals who may otherwise be overlooked while helping employers expand their talent pool.

Research suggests the program can also help reduce reliance on public assistance. When individuals from WOTC-eligible populations move into jobs, they often rely less on programs such as Supplemental Nutrition Assistances Program (SNAP) or Temporary Assistance for Needy Families (TANF), generating savings for federal and state governments over time. In fact, estimates indicate that each WOTC certification can produce roughly $17,700 in net savings from reduced spending on programs such as Medicaid, SNAP, TANF, and housing assistance.

WOTC provides a federal income tax credit to employers who hire individuals from designated targeted groups. The amount of the credit is based on the percentage of the wages paid to eligible employees during their first year of work.

For most workers, the credit can be up to $2,400 per eligible employee, although certain categories - particularly some veterans - can qualify for larger credits.

The credit amount depends in part on how many hours the employee works during their first year of employment. To claim the credit, employers must verify that a newly hired employee belongs to one of the eligible groups and receive certification through their state workforce agency.

For nearly three decades, the Work Opportunity Tax Credit has helped connect businesses with workers who are ready to contribute but may face obstacles entering the workforce. By providing a modest hiring incentive while expanding employment opportunities for targeted populations, the credit supports workforce participation, opportunities for advancement, and economic growth. Programs like the WOTC demonstrate how policies can help open doors to employment while supporting businesses that are working to grow and invest in their communities.

Tags

• Public Policy
• Tax