As summer approaches, many small businesses look for seasonal employees to help manage increased workloads or to fill in for staff on vacation. Whether you’re hiring teens for temporary help, college students returning home, or individuals looking for part-time employment, you could be eligible for thousands of dollars in federal tax credits—thanks to the Work Opportunity Tax Credit (WOTC).
The WOTC is a powerful but often overlooked tax incentive that rewards employers for hiring individuals from specific target groups that have historically faced employment barriers. For 2025, these credits can be especially helpful to businesses trying to stretch every dollar while also giving someone a chance to work.
Let’s take a deeper look at how this works—and how your business can benefit this summer.
What Is the Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit is a federal income tax credit available to employers who hire individuals from specific groups that have faced barriers to employment. The credit amount can range from $1,200 to over $9,600 per qualifying employee, depending on the target group and number of hours worked.
For small businesses hiring summer help, three of the most common WOTC categories are:
- Designated Community Residents (DCR)
- Qualified Summer Youth Employees
- Qualified Supplemental Nutrition Assistance Program (SNAP) Recipients
1. Designated Community Resident (DCR)
A Designated Community Resident is an individual who is:
- Between the ages of 18 and 39, and
- Lives in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community.
These zones are specific geographic areas with high unemployment and low income, and are identified by the IRS.
Example:
You hire Marcus, a 28-year-old who lives in a South Side Chicago neighborhood that qualifies as an Empowerment Zone. He works part-time for your landscaping company during the summer. Because Marcus meets the age and residency requirements, you could receive up to $2,400 in tax credits if he works at least 400 hours.
Pro Tip: You can use the Empowerment Zone locator tool on the IRS website or consult your tax professional to verify a candidate’s address.
2. Qualified Summer Youth Employee
This category applies specifically to:
- Youth aged 16 to 17, and
- Employed between May 1 and September 15, and
- Living in a federally designated Empowerment Zone.
This category is ideal for small businesses that want to give local teens a chance to earn money and gain job experience.
Example:
You hire Jasmine, a 17-year-old high school student, to help with customer service in your ice cream shop from June through August. She lives in an Empowerment Zone. If she works at least 300 hours, you may qualify for a $1,200 tax credit just for hiring her.
This is a great way to invest in your community while also receiving a tax break.
3. Qualified SNAP Recipient
If your new hire is between 18–39 years old and has received Supplemental Nutrition Assistance Program (SNAP) benefits (also known as food stamps) for at least 6 months prior to being hired, you may be eligible for this category.
Example:
You bring on Daniel, a 34-year-old warehouse worker who is trying to re-enter the workforce. He’s been receiving SNAP benefits for the past year. If Daniel works at least 400 hours, you could claim up to $2,400 under the WOTC program.
What’s Required?
To claim the WOTC, employers must:
- Pre-screen the new hire using IRS Form 8850 before or on the date of the job offer.
- Submit Form 8850 and ETA Form 9061 to their state workforce agency within 28 days of the employee’s start date.
- Keep detailed records of hours worked and wages paid, as these will be used to calculate the credit.
You’ll claim the credit using IRS Form 5884 when you file your business taxes.
Why It Matters for Small Businesses
Hiring is already a significant investment of time and money. The WOTC allows small businesses to recoup part of those costs by offering a dollar-for-dollar reduction in taxes owed. Not only does it lighten your tax load, but it also promotes inclusive hiring practices and community development.
Plus, many of these employees bring fresh energy and perspective—something every growing business can benefit from during the busy summer months.
Final Thoughts: Don’t Leave Money on the Table
If you’re hiring summer workers, make sure to explore WOTC eligibility. It’s a smart financial move that not only rewards your business but helps those in your community get back on their feet.
Need help screening candidates or filing the necessary forms? We’re here to help. At Howard Tax Prep LLC, we work with small businesses every day to help them unlock tax savings and stay IRS-compliant.
Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.
Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.
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