Work Opportunity Tax Credit Update: What Employers Need to Know

Key takeaways for employers navigating a potential WOTC lapse

The federal Work Opportunity Tax Credit (WOTC) remains a valuable incentive for employers that hire individuals from certain targeted groups. As we approach the end of 2025, employers should be aware of an important timing consideration that could impact how and when credits are certified.

At this time, the WOTC program is authorized through December 31, 2025. If Congress does not act to reauthorize the program before that date, WOTC is expected to enter a temporary hiatus beginning January 1, 2026.

This type of lapse is not unusual and has occurred before. Understanding how these lapses work can help employers stay prepared and avoid missing potential tax credits.

What Is the Work Opportunity Tax Credit?

The Work Opportunity Tax Credit is a federal tax credit available to employers who hire individuals from specific groups that historically face barriers to employment. These groups include, but are not limited to:

• Veterans

• Long-term unemployed individuals

• Recipients of certain public assistance programs

• Individuals referred through vocational rehabilitation programs

Eligible employers may claim a tax credit based on qualified wages paid to certified employees, subject to program rules and wage caps.

Why a WOTC Hiatus Is Possible in 2026

WOTC is not a permanent tax credit. It must be periodically reauthorized by Congress. While the program is currently funded through the end of 2025, Congress has not yet passed legislation extending it beyond that date.

If reauthorization does not occur before December 31, 2025, the program is expected to temporarily lapse beginning January 1, 2026.

This scenario has precedent. Most notably, WOTC lapsed in 2014 and was later reinstated retroactively after several months. When that occurred, employers were ultimately able to claim credits for eligible hires made during the lapse period once Congress acted.

What Employers Should Do If a Hiatus Occurs

If WOTC enters a temporary hiatus, employers should not stop their WOTC processes. Based on how prior lapses have been handled, the recommended approach is to continue as follows:

Continue screening and hiring as usual

Employers should continue WOTC screening for all new hires, just as they do today.

Complete required forms at the time of hire

The IRS Form 8850 and any applicable state or supporting documentation must still be completed on or before the job offer date or by the employee’s start date, as required under WOTC rules.

Submit forms within required deadlines

All WOTC forms must continue to be submitted to the appropriate state workforce agency within 28 days of the employee’s start date, even during a lapse.

Expect delayed certifications

During a hiatus, state workforce agencies may accept applications but cannot issue certifications until Congress reauthorizes the program.

Be aware of possible retroactive eligibility

Historically, when WOTC has been reauthorized after a lapse, Congress has included a lookback provision. This allows employers to claim credits for eligible hires made during the lapse period, provided all documentation was completed and submitted correctly and on time.

Why Documentation Still Matters During a Lapse

The most important risk during a WOTC hiatus is not the pause itself. It is failing to complete or submit required paperwork on time.

If forms are not completed at the time of hire or are not submitted within the required 28-day window, employers may permanently lose eligibility for credits tied to those hires, even if the program is later reinstated retroactively.

Maintaining compliant processes now helps protect future tax credit opportunities.

What Employers Should Watch Next

Employers should closely monitor Congressional activity related to tax extenders and workforce legislation in late 2025. Reauthorizations often occur toward the end of the year or after a brief lapse.

Until then, the best approach is preparation, consistency, and documentation.

How We Are Supporting Employers

We are actively monitoring developments related to the Work Opportunity Tax Credit and will share updates as soon as new information becomes available. If a hiatus occurs, we will continue to guide employers on best practices to help preserve potential credits.

If you have questions about WOTC screening, documentation requirements, or how a lapse could affect your organization, reach out to your payroll and HR compliance partner for guidance.

 Need help with compliance? Just reach out-contact us today! 

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