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Quick Guide: Work Opportunity Tax Credit for Employers

By: David Lanchak

The Work Opportunity Tax Credit is a long-standing tax benefit that encourages employers to hire employees from ten targeted groups facing barriers to employment.

These ten groups include:

  1. Temporary Assistance for Needy Families recipients
  2. Qualified unemployed veterans, including disabled veterans
  3. Formerly incarcerated individuals
  4. Designated community residents living in empowerment zones or rural renewal counties
  5. Vocational rehabilitation referrals
  6. Summer youth employees living in empowerment zones
  7. Supplemental Nutrition Assistance Program recipients
  8. Supplemental Security Income recipients
  9. Long-term family assistance recipients
  10. Long-term unemployment recipients

How to Qualify for the Credit

Employers must request certification for the tax credit by submitting Form 8850 to their state workforce agency within 28 days of the employee starting work at the business.

A special relief provision currently gives employers until November 8, 2021 to submit the form to their state workforce agency when hiring (or having hired) employees that fall into one of two groups: qualified summer youth employees living in empowerment zones and designated community residents living in empowerment zones. To qualify, employees must have started work after January 1, 2021 and need to start before October 9, 2021.

Though this is a federal form, employers shouldn’t submit Form 8850 to the IRS.

How to Claim the Credit

The credit amount is calculated based on wages paid to eligible workers during the first year of employment. Use Form 5884 to calculate the credit amount, and use Form 3800 to claim the credit as part of your business’s federal income tax return.

Qualified nonprofits can claim the work opportunity credit for qualified first-year wages paid to qualified veterans by using Form 5884-C. This credit is claimed against payroll taxes and is limited to the amount of business income tax liability or Social Security tax owed.

Current List of Empowerment Zones

The following empowerment zones are in effect until December 31, 2025.

Urban Areas

  • Baltimore, MD
  • Boston, MA
  • Chicago, IL
  • Cincinnati, OH
  • Cleveland, OH
  • Columbia/Sumter, SC
  • Columbus, OH
  • Cumberland County, NJ
  • Detroit, MI
  • El Paso, TX
  • Fresno, CA
  • Gary/Hammond/East Chicago, IN
  • Huntington, WV/Ironton, OH
  • Jacksonville, FL
  • Knoxville, TN
  • Los Angeles, CA (city and county)
  • Miami/Dade County, FL
  • Minneapolis, MN
  • New Haven, CT
  • New York, NY
  • Norfolk/Portsmouth, VA
  • Oklahoma City, OK
  • Philadelphia, PA/Camden, NJ
  • Pulaski County, AR
  • San Antonio, TX
  • Santa Ana, CA
  • St. Louis, MO/East St. Louis, IL
  • Syracuse, NY
  • Tucson, AZ
  • Yonkers, NY

Rural Areas

Parts of the following rural areas are designated empowerment zones.

  • Aroostook County, ME (part of Aroostook County)
  • Desert Communities, CA (part of Riverside County)
  • Griggs-Steele, ND (part of Griggs County and all of Steele County)
  • Kentucky Highlands, KY (part of Wayne County and all of Clinton and Jackson Counties)
  • Mid-Delta, MS (parts of Bolivar, Holmes, Humphreys, Leflore, Sunflower, and Washington Counties)
  • Middle Rio Grande FUTURO Communities, TX (parts of Dimmit, Maverick, Uvalde, and Zavala Counties)
  • Oglala Sioux Tribe, SD (parts of Jackson and Bennett Counties and all of Shannon County)
  • Rio Grande Valley, TX (parts of Cameron, Hidalgo, Starr, and Willacy Counties)
  • Southernmost Illinois Delta, IL (parts of Alexander and Johnson Counties and all of Pulaski County)
  • Southwest Georgia United, GA (part of Crisp County and all of Dooly County)

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