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Employers Advised to Stay the Course as WOTC Expires
The Work Opportunity Tax Credit (WOTC) has expired once again. The long-standing federal hiring incentive designed to encourage employers to recruit people from groups that face persistent barriers to employment came to the end of its most recent authorization at the end of 2025.
Created in 1996, WOTC allows employers to claim tax credits for hiring from 10 designated target groups, including qualified veterans, individuals with criminal histories, long-term unemployed workers, and recipients of public assistance.
Under current rules, employers can claim a credit equal to 40% of up to $6,000 in first-year wages for most eligible hires, capping the credit at $2,400 per worker. Certain veteran categories qualify for enhanced credits of up to $9,600.
According to the U.S. Department of Labor, more than 14 million WOTC screenings are completed annually, translating into roughly $1 billion in credits claimed by employers each year.
WOTC has particular value for employers in high-turnover sectors such as hospitality, retail, and manufacturing, where credits can meaningfully offset hiring costs while supporting workforce inclusion. Eligible groups also include Temporary Assistance for Needy Families recipients, individuals with disabilities completing vocational rehabilitation, residents of economically distressed communities, and youth employed in designated empowerment zones.
However, WOTC is a temporary tax provision that requires periodic congressional reauthorization. Since 1996, the program has been extended 13 times — often retroactively — creating compliance and planning challenges for employers.
As a result, HR leaders are advised to continue screening candidates and submitting documentation to state workforce agencies to preserve eligibility should Congress renew the program, as it has historically done.
“With the current labor dynamic, I expect there will be bipartisan support for the program’s renewal,” said Dan Lewis, vice president of compliance programs and government affairs at ADP. “WOTC serves multiple beneficial purposes, including extending the hiring pipelines for employers and providing opportunities to job seekers experiencing employment barriers.”
Advocates are currently looking for the right vehicle to attach the renewal legislation to, Lewis said. He added that it seemed unlikely that the Improve and Enhance the WOTC Act introduced in both houses of Congress in early 2025 has legs as standalone legislation.
The longest period the WOTC program has lapsed in the past is a 13-month hiatus from 2014 to 2015. But when WOTC expired, it was reauthorized retroactively, in order to cover the gap period between expiration and renewal.
That’s key for employers interested in claiming the credit. “In the absence of authorization, we recommend that all employer operations continue as normal to comply with WOTC and be eligible for the tax credits,” Lewis said. “That’s because when renewal happens, the legislation typically allows employers to file for hires made during the lapsed period as long as they have followed the pre-screening and recordkeeping requirements. If all the right protocols have been followed, employers should be eligible to receive credits for that period.”
He also recommended that employers comply with state workforce agency rules, because those are the entities that administer the program at the state level.
“Employers should continue screening for WOTC even during the program’s hiatus,” Lewis reiterated.
Clarifying Screening Rules
The program’s screening requirement is one area that needs to be addressed in any reauthorization legislation, Lewis said.
“It’s an area of advocacy that ADP has undertaken for many years,” he said. “WOTC requires employers to pre-screen applicants for eligibility before making job offers, ensuring the credit incentivizes the intentional hiring of WOTC-targeted groups,” he explained. “However, some WOTC third-party service providers are enabling post-offer screenings, using conditional or contingent employment offers, which gets around the language in the program’s requirements.”
He said there are reasons why employers may want to screen for WOTC after making a hiring decision, including that it’s more burdensome and costly to screen all candidates. There also may be misgivings about asking candidates about their criminal history or being a recipient of government aid, he said.
“But it’s actually a benefit to the candidate and it’s incumbent on the employer to inform the candidates on why those questions are being asked. The review may result in a better hiring opportunity for the candidate as well as a tax credit to the employer,” he said.
ADP is seeking a provision in the WOTC extension legislation that explicitly clarifies that eligibility screening occurs prior to any form of job offers, including contingent offers.
“The effectiveness and integrity of the program will be well-served by making this change and making sure that all employers and service providers are playing on a level playing field and supporting the intent of the program,” Lewis said.
This article is courtesy of Society for Human Resource Management (SHRM)
