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IRS Updates Work Opportunity Tax Credit Guidelines

The IRS recently announced updated guidance for the Work Opportunity Tax Credit (WOTC), which now requires employers applying for the program to submit a pre-screening and certification request document to their state workforce agency to be considered for the tax credit. The WOTC is intended to incentivize employers to hire certain targeted groups who have faced significant barriers to employment for long-term job roles. The extra step is designed to confirm the job applicant and employer meet the requirements to qualify for the credit.

Updated Pre-Screening Notice & Certification Request

To be eligible for the credit, which was extended to December 31, 2025 under the Consolidated Appropriations Act, employers must first be certified by their state workforce agency (SWA). To become certified, employers must have job applicants complete Form 8850, titled the Pre-Screening Notice and Certification Request for the Work Opportunity Credit. The form must be completed on or before the day the offer is made. The employer must file Form 8850 with the statewide workforce agency of the state in which their business is located, not the IRS. The form must be submitted no later than 28 days after the employee begins work. After employers have been certified by their SWA, they can then claim the tax credit by filing Form 5884 or Form 5884-C for veterans with the IRS. See here for further instructions for filing Form 8850.

Claiming the WOTC

Employers may claim the tax credit if they hire employees from the following targeted groups:

  • Qualified IV-A Recipient
  • Qualified Veteran
  • Qualified Ex-Felon
  • Designated Community Resident (DCR)
  • Vocational Rehabilitation Referral
  • Qualified Summer Youth Employee
  • Qualified Supplemental Nutrition Assistance Program (SNAP) Benefits Recipient
  • Qualified Supplemental Security Income (SSI) Recipient
  • Long-Term Family Assistance Recipient
  • Qualified Long-Term Unemployment Recipient

Both taxable and tax-exempt employers of all sizes are eligible to claim the WOTC. Eligible taxable employers can claim the credit against their income tax liability, while eligible tax-exempt employers can claim the WOTC only against payroll taxes for wages paid to members of the Qualified Veteran targeted group. See here for more information.

Next Steps for Employers

If you are claiming the WOTC, you must first fill out and submit Form 8850 to your local state workforce agency. While the form may be submitted electronically, not all states are equipped to receive the form in that format. Contact your state WOTC coordinator for more information. You can find your state’s WOTC coordinator contact information by visiting the IRS’s state workforce agency WOTC coordinator information webpage. If you have questions about the WOTC and how it may affect your business, contact a member of the Janover team today.

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