The Work Opportunity Tax Credit pays employers as much as $2,400 for most eligible new hires, and up to $9,600 for some veterans, to encourage companies to hire people who've had a hard time finding work. As of January 1, 2026, the credit has lapsed: its federal authorization expired December 31, 2025, and the IRS has already retired the paperwork employers used to claim it.
That doesn't mean the program is dead, and it doesn't mean employers should stop hiring from the groups it covers. It means the credit is sitting in a familiar kind of federal limbo — expired on paper, still processed on the ground, waiting on Congress. Here's what the credit actually does, who it's built to help get hired, and what changes now that it's paused.
What Is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit is a federal tax credit for employers who hire workers from specific groups the government has identified as facing persistent barriers to employment, according to the U.S. Department of Labor, which runs the program jointly with the IRS. Employers don't get the money automatically — a new hire has to be certified by a state workforce agency as belonging to one of the program's targeted groups before the credit can be claimed.
The credit isn't limited to big companies or a single industry: per the IRS, businesses of any size can claim it, whether they're taxable companies or certain tax-exempt organizations, though tax-exempt employers can only claim it against payroll taxes and only for hiring qualified veterans. The design is meant to reward a specific hiring decision — bringing in someone from a group that already faces a harder job search — that an employer might otherwise pass over.
Which Workers Qualify?
The Department of Labor's own fact sheet lists ten targeted groups: qualified veterans, people receiving Temporary Assistance for Needy Families (including long-term recipients), people receiving Supplemental Nutrition Assistance Program (SNAP) benefits, Supplemental Security Income (SSI) recipients, people with felony convictions ('ex-felons,' in the program's own terminology), people referred through vocational rehabilitation programs for workers with disabilities, residents of designated high-poverty communities, summer youth employees in those same communities, and people who have been unemployed long-term.
Each group has its own documentation requirements, handled between the employer, the new hire, and the state workforce agency — the employer never has to verify, for example, a worker's disability or benefits status on its own; that determination sits with the certifying agency, per the Department of Labor.
How Much Is the Credit Worth, and How Do Employers Claim It?
Per the IRS's own guidance, the standard credit equals 40% of up to $6,000 in first-year wages for an employee who works at least 400 hours — a maximum of $2,400 — with a reduced 25% rate for employees who work between 120 and 399 hours. Certain qualified veterans count for more: up to $24,000 in first-year wages, for a maximum credit of $9,600.
Before this year's lapse, the process ran on a clock. An employer filed Form 8850 with the new hire on or before the job offer, then submitted it to the state workforce agency within 28 calendar days of the person's start date. Once certified, a taxable employer claimed the credit on Form 5884 and rolled it into its general business credit; a tax-exempt employer hiring a qualified veteran claimed it against payroll taxes instead, on Form 5884-C. Unused credit can be carried back one year or forward up to 20, per the IRS.
Why Is the Credit in Limbo Right Now?
The Work Opportunity Tax Credit's authorization is not permanent; Congress has to renew it, and the version passed under the Consolidated Appropriations Act, 2021, ran out at the end of 2025. The IRS confirmed the wind-down directly: it discontinued Form 8850, the pre-screening notice employers had used for years, stating plainly that the work opportunity credit “does not apply to employees who begin work for the employer after December 31, 2025.”
State agencies are handling the gap in their own way. The Texas Workforce Commission, for instance, says on its own WOTC page that it will keep accepting and processing Form 8850 and ETA Form 9061 applications for hires made after the deadline — it just can't issue final certifications until Congress acts and the U.S. Department of Labor issues updated guidance. Applications filed now sit in a “hiatus” status rather than being rejected outright.
What Should Employers — and Job Seekers — Do During the Hiatus?
For an employer that hired a veteran, a SNAP recipient, or someone through a vocational rehabilitation referral this year, the practical move is to keep the paperwork moving rather than wait for Washington. Texas's workforce agency is explicit that it wants those applications filed now, not held back, so that if Congress renews the credit retroactively, employers aren't scrambling to reconstruct hire dates and eligibility documentation months later.
For job seekers in one of the ten targeted groups, the lapse changes nothing about their own eligibility for a job; it only affects whether the employer gets a tax credit for hiring them. The credit was always an incentive aimed at employers, certified through the same state workforce agencies and program eligibility rules that exist independent of the credit itself — the lapse changes an employer's tax paperwork, not a worker's standing in the underlying veterans', SNAP, or vocational rehabilitation programs.
What isn't yet public is when — or whether — Congress will renew the authorization, and on what terms. Until it does, the Work Opportunity Tax Credit remains a program with a clear rulebook and no current legal force: fully documented, actively administered by state agencies, and paused at the finish line.
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