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Qualifications to Receive the Work Opportunity Tax Credit

The Work Opportunity Credit officially expired on June 30, 1999 but the recently passed tax legislation extends the credit for 30 months. Therefore, this credit applies to qualified individuals who begin work before January 1, 2002. This credit provides an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. An individual is a member of a targeted group if he or she is a:

  • Qualified recipient of Aid to Families with Dependent Children (AFDC) or its successor program, Temporary Assistance for Needy Families (TANF) - the assistance must be received for any 9 months during the 18-month period that ends on the hiring date.
  • Qualified ex-felon - an individual that has been convicted of any felony under federal or state law and is hired not more than one year after the release from prison. This person must also be the member of a family that had an income on any annual basis of 70% or less of the Bureau of Labor Statistics lower living standard.
  • Qualified veteran - the applicant must have served on active duty in the Armed Forces for more than 180 days unless discharged for a service-connected disability. Also, the applicant must be a member of a family receiving assistance under the Food Stamp program for at least a 3-month period during the 15-month period ending on the hiring date.
  • High-risk youth - the individual must be between the ages of 18 and 24 and live in an empowerment zone or enterprise community.
  • Vocational Rehabilitation Referral - the individual has a physical or mental disability resulting in a substantial handicap to employment and was referred to the employer upon completion of a state plan of employment or a program approved by the Department of Veterans Affairs.
  • Qualified summer youth employee - the individual works between May 1 and September 15, is 16 or 17 years old, has never worked for the employer before and lives in an empowerment zone or enterprise community.
  • Qualified food stamp recipient - the individual is between the ages of 18 and 24, is a member who has received food stamps for the 6-month period ending on the hiring date and is not longer eligible for such assistance.
  • Qualified SSI recipient - the individual is receiving supplemental security income benefits under title XVI of the Social Security Act for any month ending with the 60-day period ending on the hiring date.

In order to claim the credit, you must request and be issued a certification for each employee from the state employment security agency (SESA) that proves the employee is a member of a targeted group. You must receive this certification by the day the individual starts work or you must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, signed by the individual and submit it to the SESA by the 21st day after the individual begins working.

This credit is equal to 40% of the first $6,000 of qualified first-year wages for each employee, as long as the employee worked at least 400 hours. Wages in excess of the first $6,000 do not qualify. For individuals who worked less than 400 hours, up to 25% of the first $6,000 of qualified wages may qualify for the credit as long as the individual worked at least 120 hours. If the individual worked less than 120 hours or less than 90 days, no credit is available. Rules apply to the one-year period beginning on the date the individual begins working.

This credit is claimed by filing Form 5884, Work Opportunity Credit.