WORK OPPORTUNITY AND WELFARE-TO-WORK
TAX CREDITS FACTS *
The Work Opportunity and Welfare-to-Work Tax Credits
has two purposes:
To promote the hiring of individuals who qualify as a member of a target group.
To provide a federal tax credit to employers who hire these individuals.
Target Groups that Qualify for the WOTC
Individuals hired from the following nine target groups may qualify an employer for the WOTC:
Qualified recipients of Temporary Assistance to Needy Families (TANF)
Qualified veterans receiving Food Stamps.
Qualified economically disadvantaged ex-felons hired no later than one year after conviction or
release from prison.
High-risk youth ages 18 through 24 who reside in an Empowerment Zone, Enterprise Community,
or Renewal Community.
Vocational rehabilitation referrals.
Qualified summer youth ages 16 through 17 who reside in an Empowerment Zone, Enterprise
Community, or Renewal Community.
Qualified Food Stamp recipients ages 18 through 24.
Qualified recipients of Supplemental Security Income (SSI).
Long-term recipients of TANF/Aid to Families with Dependent Children (AFDC).
Federal Tax Credit Amounts and Retention Periods for Target Groups A through H
Once an employee is retained at least 120 hours but less than 400 hours, a 25 percent tax credit is available
on qualified first year wages up to $6,000. The employee must be retained 400 hours or more for a 40
percent tax credit on qualified first year wages up to $6,000.
Federal Tax Credit Amounts and Retention Period for Target Group I
Long-term recipients of TANF/AFDC, target group I, provides for a tax credit of 35 percent on qualified
first year wages up to $10,000 and 50 percent on the second year of qualified wages up to $10,000. The
employee must be retained a minimum of 180 days or 400 hours.
Claiming Work Opportunity Tax Credits:
Employers may claim the Work Opportunity Tax Credit or the Welfare-to-Work Tax Credit for one or two
years, depending on the tax credit. Any unused portion may be carried back one year and/or forward on
future tax returns for 20 years or until all the credit is used, whichever comes first.
If an employer wishes to authorize an intermediary, such as an accountancy firm or a management
consultant, to act on their behalf in the WOTC Certification process, they must provide the EDD with a
notarized Power of Attorney. The Internal Revenue Service Form 2848 or the EDD Form DE 48 may be
used for this purpose.
* SOURCE: Employment Development Department (EDD) Fact Sheet
– DE 8721