The IRS is extending a tax credit for employers who hire individuals from certain groups that consistently face significant barriers to employment.

The Work Opportunity Tax Credit was extended through Dec. 31, 2025 by the Consolidated Appropriations Act of 2021.

The IRS provides transition relief for employers that hired certain individuals residing in empowerment zones by extending the 28-day deadline to submit certification requests for those hired between Jan. 1, 2018 and Dec. 31, 2020.

The certification of an individual as a Designated Community Resident or as a Qualified Summer Youth Employees, both under IRS code, requires that the individual reside within an empowerment zone.

Employee Groups

Employers can hire eligible employees from these targeted groups:

  • Qualified IV-A recipient
  • Qualified veteran
  • Ex-felon
  • Designated Community Resident
  • Vocational rehabilitation referral
  • Summer Youth Employee
  • Supplemental Nutrition Assistance Program recipient
  • Supplemental Security Income recipient
  • Long-Term Family Assistance recipient

Pre-Screening, Certification

Before claiming the credit, an employer must obtain certification that an individual is a member of the targeted group.

An eligible employer must file Form 8850, the pre-screening notice and certification request for the credit, with their state workforce agency within 28 days after the eligible worker starts working.

Employers should contact their individual state workforce agency with any specific processing questions.

Credit Limitations

The credit is limited to the amount of the business income tax liability or Social Security tax owed.

A taxable business may apply the credit against its business income tax liability, and the normal carry-back and carry-forward rules apply.

See the instructions for Form 3800, general business credit, for more details.

For qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to all employees for the period the credit is claimed.

Claiming the Credit

Qualified tax-exempt organizations will claim the credit on Form 5884-C, the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans, as a credit against the employer’s share of Social Security tax.

The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

Taxable Employers

After taxable employers secure the required certification, they claim the tax credit as a general business credit on Form 3800 against their income tax by filing:

Tax-Exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Dec. 31, 2014, and before Jan. 1, 2021.

After the required certification is secured, tax-exempt employers claim the credit against the employer Social Security tax by separately filing Form 5884-C.

This should be done after filing the related employment tax return for the period that the credit is claimed.

The IRS recommends that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit.

The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.