The many benefits of hiring people with disabilities are becoming more widely recognized, but one benefit is still often overlooked: tax incentives. Among the three primary such incentives, the Work Opportunity Tax Credit (WOTC) tops the list, but what is it?
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit is a federal program that provides employers with tax credits for hiring individuals from certain target groups that have faced barriers to employment, including people with disabilities.
Created as a part of the 1996 Small Business Job Act, the WOTC was a temporary tax credit designed to promote employment, empowering individuals to become members of the workforce and attain self-sufficiency while earning a steady income.
Since its initial enactment, the WOTC has been extended several times—most recently through 2025—with legislation on the table to make it permanent.
How Does the Work Opportunity Tax Credit Work?
In a nutshell, the WOTC amounts to 40 percent of an individual employee’s incurred wages, up to $6,000 for an individual who meets the following criteria:
- Is in their first year of employment
- Is certified as being a member of a target group
- Performs at least 400 hours of services for that employer
Individuals working fewer than 400 hours but at least 120 hours for an employer are subject to a reduced credit (25 percent). Rehired employees are not eligible for the WOTC.
Generally, taxable employers can apply any unused WOTC from the current year to the previous year and carry it forward.
How Does an Employer Claim This Credit?
According to the U.S. Department of Labor (DOL) and the Internal Revenue (IRS), employers must follow a structured process to claim the WOTC.
1. Prescreening and Filing Certification Request
Within 28 days of a new hire, employers must apply for certification that the employee is a member of a target group.
To do so, the employer and the newly hired employee must complete and submit the following pre-screening paperwork to the designated state agency:
- IRS Form 8850, the Pre-Screening Notice and Certification Request for the Work Opportunity Credit
- DOL Form 9061, the Individual Characteristics Form
2. Certification Approval
After the forms have been submitted to the state agency, assuming the new hire meets eligibility requirements, the employer will receive a determination from the certifying agency. The determination will detail why an employee does or does not qualify. The WOTC certification will be included if the individual qualifies for it, or the agency will request additional information.
3. Claiming the Work Opportunity Tax Credit
After certification by the designated local agency, and after the employee has worked a minimum of 120 hours, taxable employers can proceed to file the WOTC with the IRS. Taxable organizations will file IRS Form 5884, while tax-exempt organizations will file IRS Form 5884-C.
It’s crucial to complete and submit the required forms accurately. Refer to the IRS and U.S. Department of Labor websites for these forms and for detailed instructions.
What Other Tax Credits are Available for Employers Who Hire People with Disabilities?
In addition to the Work Opportunity Tax Credit, employers may be eligible for two more incentives that relate to physical accessibility.
1. Disabled Access Credit
To encourage businesses to improve accessibility for both employees and customers with disabilities, the Disabled Access Credit provides tax incentives for making establishments more accessible. Small businesses that incur expenses for architectural adaptations, equipment purchases, or services aimed at facilitating accessibility may qualify for a tax credit of up to $5,000 per year. A business can claim a tax credit once annually for qualifying access expenditures.
2. Architectural Barrier Removal Tax Deduction
The Architectural Barrier Removal Tax Deduction is another incentive aimed at encouraging businesses to make their facilities more accessible. Specifically, it allows a deduction of up to $15,000 per year for qualified expenses related to removing physical barriers in the workplace.
State Tax Credits
Several states offer their own tax credits related to hiring people with disabilities and creating accessible workplaces. More information about these credits is available on state tax board websites.
The Benefits of Hiring People with Disabilities
In addition to the direct financial benefit of hiring people with disabilities that the WOTC offers, there are proven business benefits for companies that build inclusive workforces. Here are just a handful:
- High Retention Rates: Reducing turnover and fostering continuity, maximizing organizational stability and success.
- Low Absenteeism: Fostering a healthy work environment, enhancing productivity and minimizing disruptions to workflow.
- High Productivity: Translating into increased operational success and competitiveness in the market.
- Boosted Workplace Morale: Encouraging a positive workplace culture that enhances motivation and collaboration.
- Appeal to Socially Conscious Investors: Attracting investors that are more committed than ever to putting their money toward positive social impact.
- Maximizing DEI Efforts: Creating a more equitable and representative workplace that reflects a diverse global market.
- Increased Profits: Resulting from improved employee performance, reduced turnover costs, and heightened customer satsifcation.
Connect With This Stellar Workforce
State agencies, such as the California Department of Rehabilitation, and partnering organizations like PRIDE Industries, can put employers in touch with this stellar workforce so they can make use of the Work Opportunity Tax Credit in the coming year.
