A Credit for Hiring Veterans and Other Target Groups
A federal credit for hiring veterans, long-term unemployed people, and other target groups, the 28-day certification deadline that is easy to miss, and the credit's current status.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The Work Opportunity Tax Credit rewards employers for hiring people from groups facing barriers to employment — veterans, assistance recipients, the long-term unemployed, people with felony convictions, and others. It is 25 or 40 percent of first-year wages up to a group cap, needs certification within 28 days of the start date, and lapsed for employees starting after 2025.
On this page
Who are the target groups?
| Group | Wage cap for the credit | Maximum credit at 40 percent |
|---|---|---|
| Qualified veterans (several categories) | $6,000 to $24,000 | $2,400 to $9,600 |
| Long-term family assistance recipients | $10,000 a year for two years | $9,000 (40 percent of year-one wages plus 50 percent of year-two wages) |
| Food assistance (SNAP) recipients aged 18–39 | $6,000 | $2,400 |
| Temporary assistance (TANF) recipients | $6,000 | $2,400 |
| Qualified ex-felons (hired within a year of conviction or release) | $6,000 | $2,400 |
| Vocational rehabilitation referrals | $6,000 | $2,400 |
| Supplemental Security Income recipients | $6,000 | $2,400 |
| Long-term unemployed (27 weeks or more) | $6,000 | $2,400 |
| Designated community residents | $6,000 | $2,400 |
| Summer youth employees | $3,000 | $1,200 |
The credit is 25 percent of first-year wages if the employee works at least 120 hours and 40 percent at 400 hours or more. Rehired employees and relatives of the owner do not qualify.
How is it claimed?
- The applicant and employer complete Form 8850 on or before the day the job offer is made.
- The employer submits Form 8850 and the Department of Labor's ETA Form 9061 to the state workforce agency within 28 calendar days after the employee starts. Late submissions are rejected.
- The state agency certifies the employee.
- The employer claims the credit on Form 5884 with its return; pass-through owners claim their share through the general business credit.
The wage deduction is reduced by the amount of the credit.
What is the credit's status?
The credit has lapsed. Congress last extended it in the Consolidated Appropriations Act, 2021, through December 31, 2025, and Section 51(c)(4) excludes wages paid to anyone who begins work after that date. The 2025 tax law (P.L. 119-21) did not extend it, and no extension had been enacted as of October 2026, so employees who start work in 2026 do not qualify unless Congress extends the credit retroactively. Employees who began work on or before December 31, 2025, still count, including their qualifying wages paid in 2026. If Congress does extend it retroactively, the IRS has said it may allow more time to submit Form 8850 for employees who began work during the lapse.
Is it worth the effort for a small business?
For employees who started work by December 31, 2025, yes — the credit still applies to their qualifying first-year wages, including wages paid in 2026, so finish any pending certifications and claim it. For 2026 hires there is nothing to claim unless Congress extends the credit retroactively. If it does, the economics favor employers with turnover in entry-level roles — hospitality, retail, warehousing, home care — who build the form into onboarding.
Frequently asked questions
Can a tax-exempt organization claim it?
Only for qualified veterans, as a credit against payroll tax rather than income tax.
Does the credit carry forward if I have no tax this year?
Yes. As part of the general business credit it carries back one year and forward 20.
Does the employee's pay or benefits change?
No. The credit is the employer's; the employee is paid normally.
Can I ask applicants about their eligibility?
The form itself asks the questions. Hiring decisions must not be based on membership in a target group in a way that violates employment law.
Official sources
The IRS explains: “The Consolidated Appropriations Act, 2021 (Section 113 of Division EE P.L. 116-260) authorized the extension of the WOTC until December 31, 2025.” — Internal Revenue Service, Work Opportunity Tax Credit, https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit
The IRS explains: “Employers file Form 5884 to claim the work opportunity credit for qualified first- and/or second-year wages they paid to or incurred for targeted group employees during the tax year.” — Internal Revenue Service, About Form 5884, Work Opportunity Credit, https://www.irs.gov/forms-pubs/about-form-5884
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk builds the certification step into onboarding and claims the credit with the return. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call