WOTC Tax Credits: Why Employers Should Hire People with Records
What Is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax incentive that rewards employers for hiring individuals from specific target groups who face persistent barriers to employment. People with felony convictions are one of the most accessible qualifying categories.
For employers, it's straightforward: hire someone who qualifies, complete IRS Form 8850 within 28 days of their start date, and receive a credit against your federal income tax.
How Much Is the Credit?
| Scenario | Credit Amount |
|---|---|
| Employee works 120–399 hours | $1,200 (25% of first $6,000 wages) |
| Employee works 400+ hours | $2,400 (40% of first $6,000 wages) |
| Long-term TANF recipient | Up to $9,000 over two years |
| Summer youth hire | Up to $1,200 |
For a typical full-time hire at $15/hour, an employer receives $2,400 in the first year if the employee reaches 400 hours. That's roughly 3 months of offset on employer payroll taxes and overhead.
Who Qualifies Under the Ex-Felon Category?
An individual qualifies as an "ex-felon" for WOTC purposes if:
- They were convicted of a felony under federal or state law
- They were hired within one year of their conviction date OR their release from prison, whichever is later
The crime type doesn't determine WOTC eligibility — felony status and timing do. Both violent and non-violent offense histories qualify.
The Process: Three Steps
1. Pre-screen the candidate Before or on the day of hiring, have the candidate complete IRS Form 8850 (Pre-Screening Notice). This records eligibility information.
2. Submit to your State Workforce Agency Form 8850 must be submitted to your state's designated agency within 28 days of the employee's start date. Each state has its own submission process.
3. Claim the credit on your tax return Once the state agency certifies the hire, use IRS Form 5884 to claim the credit on your annual federal return.
Why More Employers Are Using It
Fair chance hiring isn't just the right thing — it's financially rational.
Companies that have built WOTC-optimized hiring programs report:
- Lower net labor costs — $2,400+ credit per qualifying hire reduces effective first-year cost
- Stronger retention — Fair chance employees who get a genuine opportunity tend to stay longer
- Diverse, motivated workforce — People who struggled to find work are often exceptional performers when given a chance
For Employers: Use OpenPath's WOTC Tools
OpenPath's employer portal includes a WOTC tax credit calculator and a compliance guide covering:
- Ban-the-box laws by state
- Federal contractor fair chance requirements
- Individualized assessment best practices
- Sex offense-specific hiring considerations
Access the employer compliance guide or post your first job listing to start building a fair chance hiring program.
For Job Seekers: Use WOTC as a Negotiating Point
If you were convicted of a felony and were hired within one year of your conviction or release, you likely qualify. Telling an employer about WOTC during a job conversation turns your record into a financial asset for them.
Bring it up. Most small employers haven't heard of it — and learning about it from a candidate is memorable.