Work Opportunity Tax Credit Nears Expiration as Congress Debates Extension, Expansion

For nearly 30 years, the Work Opportunity Tax Credit (WOTC) has served as a critical federal incentive encouraging employers to hire individuals who face structural barriers to entering or re-entering the workforce. Enacted in 1996, the credit reflects a policy judgment that employers can play a direct role in expanding labor force participation among veterans, individuals with criminal records, and recipients of public assistance.

The credit has been particularly relevant for industries such as staffing, quick-service restaurants, and fast food, where entry-level and hourly roles often provide a critical on-ramp to long-term employment. Absent congressional action, the WOTC is scheduled to expire at the end of 2025. Our Staffing leaders have outlined the current situation as well as potential economic impact of an extension.

How the WOTC works today

The WOTC allows employers to claim a federal tax credit for hiring individuals from designated “targeted groups.” These groups include qualified veterans, ex-felons, recipients of Supplemental Nutrition Assistance Program (SNAP) benefits, and certain individuals receiving public assistance.

For eligible hires, employers may claim a credit equal to up to 40% of qualified first-year wages, capped at $2,400 per employee. In limited circumstances, such as certain long-term public assistance recipients, a partial credit may also be claimed on second-year wages.

Most for-profit businesses claim the WOTC as a general business credit against income taxes. Tax-exempt organizations may also benefit, provided they hire qualified veterans and use the offset as a deduction against payroll taxes. In all cases, employers must obtain certification from their state workforce agency confirming the employee’s eligibility, making early coordination during the hiring process essential.

Bipartisan efforts to extend and expand the credit

Lawmakers recently introduced the Improve and Enhance the WOTC Act (S. 3265/H.R. 6231), which would extend the credit for five years, through December 31, 2030. The legislation would also increase the credit’s value and scope.

The proposal would raise the credit percentage from 40% to 50% of qualified wages and index the credit to inflation. It would also expand eligibility by allowing employers to claim the credit for hiring military spouses and by eliminating the current age restriction for SNAP recipients, which limits eligibility to individuals between 18 and 40 at the time of hire.

Economic impact and ongoing debate

Supporters point to data suggesting that the WOTC delivers measurable economic benefits, estimating that an extension would support nearly 100,000 new jobs and add billions to the GDP. Expansion would increase those figures nearly five times.  

Critics, however, argue the credit does little to influence hiring behavior and instead subsidizes decisions employers would have made regardless. Some policy analysts advocate for alternative approaches, such as reforms to the Earned Income Tax Credit, Child Tax Credit, or negligent-hiring laws, as more effective tools for supporting disadvantaged workers.

Bottom line

The WOTC remains one of the most significant federal tax incentives tied directly to hiring decisions, particularly for staffing firms and quick-service employers navigating persistent labor challenges. With the credit’s expiration looming and Congress debating its future, employers should closely monitor legislative developments and evaluate how potential changes could affect workforce strategy and tax planning.

If you would like help assessing your current WOTC exposure or preparing for potential changes to the credit, connect with UHY’s Tax Practice through the form on this page.