Employers today are navigating an increasingly competitive hiring landscape. Amid these challenges, the federal Work Opportunity Tax Credit (WOTC) and the Empowerment Zone Employment Credit provide powerful, often underused incentives to help organizations reduce hiring costs while supporting underserved communities.
What Is the Work Opportunity Tax Credit (WOTC)?
The WOTC is a federal tax credit available to employers who hire individuals from certain targeted groups that have historically faced significant barriers to employment. These groups include:
Veterans
Long-term unemployed individuals
Recipients of TANF, SNAP, or SSI benefits
Ex-felons
Designated community residents (including those living in Empowerment Zones)
The credit amount can range from $2,400 up to $9,600 per eligible employee, depending on the target group and hours worked.
How Employers Benefit
Cost Savings: Direct reductions in federal tax liability
Inclusive Hiring: Encourages diversity and supports social impact
Scalable: No cap on the number of qualified employees you can claim
What Are Empowerment Zones?
Empowerment Zones are economically distressed urban and rural areas where employers are eligible for additional tax benefits when hiring local residents. The Empowerment Zone Employment Credit offers employers up to $3,000 annually per employee who both lives and works in the zone.
Combined Opportunities
If a new hire qualifies under both WOTC and the Empowerment Zone program, employers may be able to take advantage of both credits—provided specific criteria and documentation are met.
State-Level Tax Credit Enhancements
In addition to federal incentives, some states offer "piggyback" tax credit programs that mirror or supplement the federal WOTC. These can provide additional savings for employers who hire from qualifying groups within their state. Be sure to check with your state’s workforce agency or a tax credit specialist to understand what local programs may apply to your business.
Claiming These Credits
Pre-Screening: Complete IRS Form 8850 on or before the job offer date.
Certification: Submit documentation to your state workforce agency within 28 days of the employee's start date.
Filing: Claim the credit on IRS Form 5884 as part of your annual tax filing.
Best Practices for Employers
Integrate WOTC screening into onboarding workflows
Train HR teams to identify eligible hires
Use tax credit consultants or payroll partners (like PayNW) to manage compliance and filing
Industries That Benefit Most
During our recent webinar, CTI emphasized that certain industries consistently see higher eligibility rates for WOTC and Empowerment Zone credits due to their hiring models and workforce demographics. These include:
Hospitality and Food Service: High volume of hourly workers and frequent hiring cycles.
Retail: Seasonal hiring and turnover create ongoing opportunities for credit eligibility.
Healthcare and Home Services: Especially roles with entry-level or non-credentialed staff.
Manufacturing and Distribution: Large workforces and positions that often attract qualifying candidates.
Staffing Agencies: Frequent placements across industries make these firms well-positioned to maximize credits.
If your business operates in one of these sectors, the opportunity to capture meaningful tax savings is significant. With the right screening tools in place, these industries can routinely generate credits that improve margins and reinvestment capacity.
Simplifying the Process with PayNW and CTI
PayNW partners with Corporate Tax Incentives (CTI) to provide an easy, integrated solution for identifying and capturing eligible tax credits. This partnership streamlines the screening process, reduces administrative burden, and helps ensure clients receive the maximum available benefits.
The Work Opportunity Tax Credit and Empowerment Zones offer significant financial incentives that align with smart hiring practices. By tapping into these programs, employers not only lower their tax burden but also invest in communities and individuals who need it most. PayNW clients can leverage integrated solutions to streamline eligibility tracking and maximize tax credit opportunities with confidence.
Ready to Put These Credits to Work?
PayNW clients benefit from seamless access to WOTC and Empowerment Zone credit opportunities through our integration with Corporate Tax Incentives (CTI). While CTI handles the credit screening and compliance, PayNW ensures the necessary data flows smoothly from onboarding to payroll data. Reach out to learn how our platform and partnership makes it easier to capture tax credits without adding administrative burden.
Learn More: Watch our webinar on WOTC and Empowerment Zones for deeper insights.