The Work Opportunity Tax Credit (WOTC)

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A Federal Business Tax Credit for Iowa's Employers

About

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain eligible individuals from certain targeted groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.  

As an employer, WOTC reduces your cost of doing business by decreasing your federal income tax liability between $2,400.00 and $9,600.00 per employee, depending on the target group identified and hours worked during the first year of employment. For you to earn a WOTC, your new employee must work at least 120 hours during his/her first year of employment and must have not worked for you previously. You can claim the WOTC on an unlimited number of qualified employees each year.  

Who Qualifies?

WOTC applies only to new employees. The new employee must belong to one of the following target groups: 

  • TANF Recipients: A member of a family receiving Temporary Assistance to Needy Families (TANF). The employee must have received benefits for some 9-month period during the 18 months ending on the hiring date.
  • Qualified Veteran (any of the following):
    • A veteran AND a member of a family receiving SNAP for at least 3 months during the 15 months preceding the hiring date.
    • A veteran who is entitled to compensation for a service-connected disability and who was hired not more than one year after he/she was discharged or released from active duty in the U.S. Armed Forces.
    • A veteran who is entitled to compensation for a service-connected disability and who has been unemployed for a period or periods totaling at least six months during the year that ends on the hiring date.
    • A veteran unemployed at least four weeks (whether or not consecutive) or six months or more (whether or not consecutive) in the year prior to being hired.
  • Ex-Felons:  Someone convicted of a felony or released from prison for a felony within one year of the date of hire.
  • Designated Community Resident
    • On the date of hiring, an individual who is at least 18 years old and under 40 AND who resides in a Rural Renewal County AND continues to reside at the location after employment.
    • Rural Renewal Counties in Iowa are: Adair, Adams, Appanoose, Audubon, Butler, Calhoun, Cass, Cherokee, Clay, Clayton, Emmet, Floyd, Franklin, Fremont, Hancock, Humboldt, Ida, Keokuk, Kossuth, Montgomery, Osceola, Palo Alto, Pocahontas, Poweshiek, Sac, Taylor, Union, Wayne, Winnebago and Worth
  • Vocational Rehabilitation Referrals: 
    • An individual who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services under one of the following:
      • A state rehabilitation plan.
      • An Employment Network Plan under the Ticket to Work Program.
      • A program carried out under the Department of Veterans Affairs.
  • SNAP Recipients: An individual who is 18 to 39 years old AND a member of a family that has received food stamps for the last six months.
  • Supplemental Security Income (SSI) Recipients: An individual who received SSI benefits for any month within the last 60 days ending on the hire date.
  • Long-term Family Assistance Recipients (LTFA):  A member of a family that:
    • Received TANF payments for at least 18 consecutive months ending on the hiring date OR;
    • Received such family assistance for a total of at least 18 months (whether or not consecutive) after August 5, 1997, if the individual is hired within two years after the date that the 18-month total is reached OR;
    • Stopped being eligible for assistance after August 5, 1997, due to federal or state law limits, and the individual is hired not more than two years after such eligibility for assistance ends.
  • Long-term Unemployed Recipient (LTUR): An individual who has been unemployed for not less than 27 consecutive weeks at the time of hiring and who has received unemployment compensation during some or all of the unemployment period. 

Apply for The Work Opportunity Tax Credit (WOTC)

Read the following steps to learn how to apply for the Work Opportunity Tax Credit (WOTC).

How to Claim the Credit

You will need to file for the credit with the IRS.

  • Once your business receives a certification from IWD, you may file for the tax credit with the IRS.
  • Generally, an employer elects to take the credit by filing IRS Form 5884, Work Opportunity Credit.
  • A tax-exempt organization that hires an employee in the WOTC Veteran target group should use IRS Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
  • Your company also must meet a requirement known as the Minimum Employment Period, which is the number of hours an employee is required to work – at least 120 hours in the first year of employment –before you can file and qualify for the tax credit on that employee.