Higher employee retention and lower absenteeism are two well-established benefits of hiring people with disabilities. But they’re not the only ones. Businesses that invest in an inclusive workforce are also eligible for tax credits. And while these incentives can vary from state to state, one tax credit is available no matter where in the U.S. a business is located—the Work Opportunity Tax Credit (WOTC).
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 began as 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 enhance it.
How Does the Work Opportunity Tax Credit Work?
In a nutshell, the WOTC is equal to 40 percent of an individual employee’s incurred wages, up to $6,000 for an individual who:
- 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. Eligible employers can apply any unused WOTC from the current year to the previous year and carry it forward. The maximum tax credit is generally $2,400.
How Does an Employer Claim This Credit?
According to the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS), employers must follow a three-step 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, 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 may 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, 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.
Additional Tax Credits for Employers Who Hire People with Disabilities
In addition to the Work Opportunity Tax Credit, employers who hire people with disabilities may be eligible for additional tax incentives that relate to physical accessibility.
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.
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 tax breaks like the WOTC, hiring people with disabilities offers several other proven benefits for businesses. Here are just a handful:
- High Retention Rates reduce turnover and foster continuity, maximizing organizational stability and success.
- Low Absenteeism fosters a healthy work environment, enhancing productivity and minimizing disruptions to workflow.
- High Productivity translates into increased operational success and competitiveness in the market.
- Boosted Workplace Morale encourages a positive workplace culture that enhances motivation and promotes collaboration.
- Positive Social Impact appeals to socially conscious investors.
- Increased Profits result from improved employee performance, reduced turnover costs, and heightened customer satisfaction.
How to Connect with a 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.
