WOTC Tax Credits Explained: Why Employers Should Hire People With Records
<p>Every year, thousands of employers leave money on the table by ignoring the <strong>Work Opportunity Tax Credit (WOTC)</strong>—a federal incentive worth up to $9,600 per qualifying hire. One of the most accessible WOTC target groups: people with felony convictions. If your business isn't claiming this credit, you're paying more in taxes than you need to.</p>
<h2>What Is WOTC?</h2>
<p>The Work Opportunity Tax Credit is a federal tax incentive administered by the IRS and the Department of Labor. It's designed to encourage employers to hire workers from groups that face significant barriers to employment. The credit reduces your federal income tax liability dollar-for-dollar.</p>
<p>WOTC has been in place since 1996 and is periodically renewed by Congress. The Consolidated Appropriations Act extended it through December 31, 2025.</p>
<h2>Who Qualifies as a Target Group Employee?</h2>
<p>WOTC covers multiple target groups. For employers focused on second-chance hiring, the most relevant are:</p>
<ul> <li><strong>Ex-felons:</strong> Hired within one year of release from prison or conviction date. Credit: up to $2,400.</li> <li><strong>Supplemental Nutrition Assistance Program (SNAP) recipients</strong></li> <li><strong>Long-term TANF recipients:</strong> Credit: up to $9,000 over two years.</li> <li><strong>Veterans with disabilities:</strong> Credit: up to $9,600.</li> <li><strong>Designated Community Resident:</strong> Ages 18–39 living in Empowerment Zones or Rural Renewal Communities.</li> <li><strong>Long-term unemployment recipients</strong></li> </ul>
<p>Note: The "ex-felon" category covers any felony conviction—including sex offenses. There is no restriction on offense type for WOTC eligibility purposes.</p>
<h2>How Much Is the Credit?</h2>
<table style="width:100%;border-collapse:collapse;margin:16px 0;"> <thead> <tr style="background:rgba(52,211,153,0.1);text-align:left;"> <th style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.1);">Target Group</th> <th style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.1);">Max Credit</th> <th style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.1);">Hours Required</th> </tr> </thead> <tbody> <tr><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">Ex-felon</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">$2,400</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">400+ hours = 40% of wages; 120-399 hours = 25%</td></tr> <tr><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">Long-term TANF recipient</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">$9,000</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">Spread over 2 years</td></tr> <tr><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">Veteran with service-connected disability</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">$9,600</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">First year of employment</td></tr> <tr><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">SNAP recipient (age 18-39)</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">$2,400</td><td style="padding:10px;border-bottom:1px solid rgba(255,255,255,0.05);">400+ hours</td></tr> </tbody> </table>
<p>For an ex-felon working 2,000 hours per year at $15/hour (annual wages = $30,000), the WOTC credit is <strong>40% × $6,000 first-year wages = $2,400</strong> (only the first $6,000 in wages is counted for ex-felon hires).</p>
<h2>How to Claim WOTC</h2>
<ol> <li><strong>Screen before or on day of hire.</strong> The employee must complete IRS Form 8850 (Pre-Screening Notice) on or before their first day of work.</li> <li><strong>Submit to your State Workforce Agency (SWA) within 28 days.</strong> Send Form 8850 and DOL Form 9061 (Individual Characteristics Form) to your state's workforce agency.</li> <li><strong>Receive certification.</strong> The SWA certifies whether the employee qualifies.</li> <li><strong>Claim credit on your tax return.</strong> Use IRS Form 5884 to claim the credit on your business tax return.</li> </ol>
<p>Many payroll processors (ADP, Paychex, Gusto) now offer WOTC screening as an add-on service and will handle the paperwork for you.</p>
<h2>The Business Case Beyond Tax Savings</h2>
<p>WOTC is just one piece of the fair chance hiring ROI equation. Employers consistently report that second-chance hires show:</p> <ul> <li><strong>Lower turnover rates</strong> — employees who got a chance they couldn't get elsewhere tend to stay</li> <li><strong>Higher loyalty and motivation</strong></li> <li><strong>Access to a larger talent pool</strong> — 1 in 3 American adults has a criminal record</li> </ul>
<p>Major employers who have benefited from fair chance hiring include Dave's Hot Chicken, Greyston Bakery (which pioneered open hiring), and dozens of Fortune 500 companies through the Fair Chance Business Pledge.</p>
<h2>Post Jobs and Find Qualified Candidates</h2>
<p>If you're ready to hire people with records, <a href="/employer/register">OpenPath's employer portal</a> connects you with motivated job seekers who have been vetted and are actively looking for work. Our compliance guide walks you through WOTC, ban-the-box laws, and best practices for individualized assessments.</p>
<p><a href="/employer/register">Register as an employer →</a></p>