Work Opportunity Tax Credit (WOTC) Expiration, Extension, and What Employers Need to Know

What is the Work Opportunity Tax Credit (WOTC)?

The Work Opportunity Tax Credit (WOTC) is a federal hiring incentive that encourages employers to hire individuals who face barriers to employment. Enacted in 1996, the WOTC reflects a long-standing policy goal of expanding workforce participation among populations such as veterans, individuals with criminal records, and recipients of public assistance.

The credit has been especially relevant for staffing firms, quick-service restaurants, and fast-food operators, where entry-level and hourly positions often serve as an on-ramp to sustained employment.

When does the WOTC expire?

Absent congressional action, the WOTC will expire for employees who begin work after December 31, 2025. Employers will not be able to claim the credit for new hires who start in 2026 or later unless the program is extended.

This pending expiration has increased attention from employers and policymakers, particularly in labor-intensive industries already facing persistent hiring challenges.

How does the WOTC work today?

Under current law, the WOTC allows employers to claim a federal tax credit for hiring individuals from designated “targeted groups,” including:

• Qualified veterans
• Individuals with felony convictions
• Supplemental Nutrition Assistance Program (SNAP) recipients
• 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 for certain long-term public assistance recipients—a partial credit may also be claimed on second-year wages.

Most for-profit employers claim the WOTC as a general business credit against income taxes. Tax-exempt organizations may also qualify, but only when hiring eligible veterans and only as an offset against payroll taxes.

In all cases, employers must obtain certification from their state workforce agency confirming that the employee meets eligibility requirements, making early coordination during the hiring process essential.

What legislation would extend or expand the WOTC?

Congress is currently considering the Improve and Enhance the WOTC Act (S. 3265 / H.R. 6231), a bipartisan proposal that would extend the credit for five years, through December 31, 2030.

The legislation would also enhance the credit by:

• Increasing the credit percentage from 40% to 50% of qualified wages
• Indexing the credit to inflation
• Expanding eligibility to include military spouses
• Removing the current age restriction for SNAP recipients (currently limited to ages 18–40)

What is the economic impact of extending the WOTC?

Supporters argue that the WOTC delivers measurable economic benefits. Estimates suggest that a straight extension of the credit would support nearly 100,000 new jobs and add billions of dollars to GDP. Expansion of the credit could increase those figures by as much as five times.

Critics counter that the WOTC does not meaningfully influence hiring decisions and instead subsidizes hires employers would have made regardless. Some policy analysts advocate for alternative approaches, including reforms to the Earned Income Tax Credit, Child Tax Credit, or negligent-hiring laws.

Why does the WOTC matter for staffing firms and quick-service restaurants?

Staffing companies and quick-service restaurant operators disproportionately hire from WOTC-eligible labor pools. For these employers, the credit can directly affect hiring costs, workforce planning, and overall tax strategy—especially in a tight labor market.

Bottom line: What should employers do now?

The Work Opportunity Tax Credit remains one of the most significant federal tax incentives tied directly to hiring decisions. With its expiration approaching and Congress actively 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.