The Work Opportunity Tax Credit (WOTC) – aimed at helping transition certain groups back into the workforce – is set to expire at year end. A bipartisan group of lawmakers is pushing not only for an extension of the credit, but an expansion in both potential credit value and eligibility.
The Current Credit
The WOTC, under IRC § 51, is designed to encourage employers to hire individuals from certain groups that have historically faced barriers to employment, such as veterans, ex-felons, and recipients of public assistance. A credit is currently available for up to 40% of these workers’ qualified first-year wages. (The maximum credit per-worker is $2,400.) For workers from certain families receiving public assistance, a credit for second-year wages is also available.
Most for-profit businesses may claim the WOTC as a general business credit against income taxes if they hire and pay wages to individuals certified as members of targeted groups. A limited credit against payroll taxes is available for tax-exempt organizations that hire qualified veterans. Employers must obtain certification from a “designated local agency” (their state workforce agency) that the new hire is a member of a targeted group.
The WOTC is set to expire at year end and will not be available for employees who begin work after December 31, 2025.
Bipartisan Proposal
On November 20, lawmakers introduced the bicameral, bipartisan Improve and Enhance the Work Opportunity Tax Credit (WOTC) Act (S. 3265/H.R. 6231) to extend the WOTC for five years, through December 31, 2030.
The legislation, led by Senator Bill Cassidy (R-LA) and Representative Lloyd Smucker (R-PA), would also boost the value of the credit in two ways. It would increase the credit percentage from 40% to 50% of qualified wages and index the credit to inflation.
The legislation also would expand the scope of workers for which the WOTC can be claimed. First, it would make the credit available for businesses that hire military spouses. It does so by incorporating a popular bipartisan bill introduced earlier this year, the Military Spouse Hiring Act (S. 1027/H.R. 2033) – that bill has amassed 37 co-sponsors in the Senate and 118 in the House.
The Improve and Enhance the WOTC Act also would remove an age cap on the credit for SNAP recipients. The current credit is only available to qualified supplemental nutrition assistance benefits recipients who are between 18 and 40 years of age when hired.
Popular Credit has Some Critics
The WOTC is one of the often-cited tax extenders that policy experts think Congress could pass by the end of the year. Also on that list are the special expensing rules for film, television and theater under IRC § 181 and Empowerment Zone incentives.
An April 2025 EY study found that simply extending the WOTC would support 131,000 new jobs and contribute $2.1 billion to GDP. The EY study evaluated an earlier version of the Improve and Enhance the WOTC Act that did not include military spouse eligibility but did include the other expansion provisions. The extension and expansion, said EY, would support an estimated 480,000 new jobs and contribute $7.7 billion to GDP.
In Smucker’s view, “[t]he best anti-poverty program is a good job.” And the WOTC, he explains, “helps both employers and workers, as individuals transition back into the workforce.” Cassidy, likewise, contends that the Improve and Enhance the WOTC Act will further reduce burdens on employers who hire veterans, military spouses, and “other individuals who have fallen through the cracks.”
But not everyone supports the WOTC. Arnold Ventures’ George Callas argues that the credit, which was put in place in 1996, “benefits some businesses but does not affect their hiring decisions.” He cites a study that looked at 13 million individuals in Wisconsin over two decades and found no evidence that the WOTC “increases employment of eligible workers.” Because businesses would have made the same hiring choices absent the WOTC, the study characterizes the credit as “windfall wastage.”
“We should not be handing out corporate welfare under the illusion that it is helping disadvantaged workers without evidence that it is actually doing so,” says Callas. He argues that a better option would be “pro-work reforms” to the Earned Income Tax Credit and Child Tax Credit.
Callas also offers suggestions specifically to help formerly incarcerated individuals re-enter the workforce. Lawmakers can “directly address employers’ concerns about hiring workers with past criminal records” by reforming negligent-hiring laws and addressing crime and safety insurance limitations, he explains.
For more on the current WOTC, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-17775.
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