Employers Must Certify Employees Before Claiming Work Opportunity Tax Credit

Employers hiring individuals from specific groups can decrease their tax liability by claiming the Work Opportunity Tax Credit on their federal tax returns. This credit encourages employers to hire workers certified as members of any of the ten groups facing employment barriers.

When hiring, employers might want to take a moment to review the eligibility requirements for the Work Opportunity Tax Credit. To claim the credit, an employer must first obtain certification that an individual is a member of one of the specified groups. They do this by submitting Form 8850, Pre-Screening Notice and Request for Certification for the Work Opportunity Tax Credit, to their state workforce agency within 28 days after the eligible worker starts working.

Form 8850 and State Workforce Agencies

Employers should not send this form to the IRS. Instead, they should contact their state workforce agency if they have any questions about processing Form 8850. Eligible employers claim the Work Opportunity Tax Credit on their federal tax return. It is generally based on wages paid to eligible workers during the first year of employment.

After the employer receives certification from Form 8850, they calculate the credit on Form 5884, Work Opportunity Tax Credit, and then claim the credit on Form 3800, General Business Credit.

Special Rule for Tax-Exempt Organizations

A special rule allows tax-exempt organizations to claim the credit only for hiring qualified veterans who started working for the organization before 2026. After the employer receives the certification from Form 8850, these organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Tax Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.

For a taxable company, the value of the credit is limited to the company’s tax liability. For qualified tax-exempt organizations, the credit is limited to the amount of the employer’s Social Security tax owed on wages paid to qualified employees.

For more information, please visit the IRS.gov website’s relevant sections on Work Opportunity Tax Credit and Form 8850.