Program Costs for Expired Federal Tax Credit Still Being Funded

Why It Matters

The Work Opportunity Tax Credit (WOTC), a provision of the Internal Revenue Code that subsidizes employers who hire workers from specific disadvantaged populations, lapsed on January 1, and according to a Congressional Research Service (CRS) report updated May 13, employers can no longer claim the credit for wages paid after December 31, 2025.

But Congress is still simultaneously funding the program's administration, while the underlying credit sits dormant. The 2026 Consolidated Appropriations Act appropriated $17.5 million to the Department of Labor for state WOTC administration, even as a DOL guidance letter issued in April directed that states "may not issue a certification" during the lapse period. States are being paid to prepare paperwork they cannot complete.

The Big Picture

A Credit With a Long History of Lapses

According to the CRS report, the credit has lapsed and been retroactively reauthorized multiple times since its creation in 1996. It lapsed after December 31, 2013, for example, before being retroactively extended by the Tax Increase Prevention Act of 2014, enacted nearly a full year later. Its most recent authorization, extended through the Taxpayer Certainty and Disaster Tax Relief Act of 2020, simply ran out at the end of last year without a renewal in place.

The credit's design is meant to support employers who hire workers from ten federally defined target groups. They can claim a tax credit equal to 40 percent of qualified first-year wages if the employee works at least 400 hours, or 25 percent if the employee works between 120 and 399 hours. The most common maximum credit is $2,400, based on a $6,000 wage ceiling. For certain disabled veterans who have been long-term unemployed, that ceiling rises to $24,000, yielding a maximum credit of $9,600 per hire.

Who the Credit Is Designed to Help

The ten eligible populations span a wide range of circumstances, including recipients of Supplemental Nutrition Assistance Program benefits, Temporary Assistance for Needy Families (TANF) recipients, qualified veterans, ex-felons hired within one year of conviction or release, Supplemental Security Income recipients, individuals with disabilities referred through vocational rehabilitation programs, designated community residents living in empowerment zones, summer youth employees, and long-term unemployment recipients who have been out of work for at least 27 consecutive weeks.

The CRS report is careful to note the credit's intended scope. It "is structured to provide an advantage to workers from WOTC target groups seeking employment; it is not designed to stimulate the creation of new jobs." The goal is to redirect hiring toward disadvantaged workers, not to grow the overall labor market.

Who Is Using It

Data from the Department of Labor show that SNAP recipients have dominated WOTC certifications in recent years. From fiscal year 2022 through fiscal year 2024, SNAP recipients accounted for approximately 64 percent of all certifications, totaling roughly 3.9 million out of 6.1 million total certifications over that period. Long-term unemployed individuals were the second-largest group at approximately 11 percent. Veterans accounted for about six percent of certifications during the same period.

Total certifications have declined year over year, from approximately 2.57 million in fiscal year 2022 to approximately 1.58 million in fiscal year 2024. The government does not track how many of those certifications translated into actual credits claimed, since not every certified worker meets the minimum hour retention requirement.

The cost of this situation to the federal government is significant. The Joint Committee on Taxation estimated WOTC claims in fiscal year 2025 at approximately $1.3 billion, with corporations accounting for roughly $900 million and individuals, including employers who report business income on personal returns, claiming approximately $400 million.

Political Stakes

For the Administration

The administration has pushed for stricter work requirements for SNAP and TANF recipients. The WOTC is one of the primary market-based tools that makes it financially attractive for employers to hire those same individuals. Letting it lapse removes an employer-side incentive precisely as the administration seeks to push more benefit recipients into the workforce.

The veterans hiring credit is also now dormant. Credits of up to $9,600 per hire for disabled veterans who have been long-term unemployed are currently unavailable to employers, another gap that sits awkwardly alongside the administration's stated commitment to veteran employment.

For Congressional Republicans

The WOTC has historically moved as part of broader "tax extender" packages, which are bundles of temporary tax provisions that Congress periodically renews. With Republicans currently negotiating a major budget reconciliation package, the WOTC reauthorization is a potential inclusion. Its employer tax incentive structure aligns with Republican pro-business priorities, and its bipartisan history gives it a relatively smooth political path if leadership chooses to include it.

But paying states to administer a lapsed program also creates a pressure point. It is difficult to defend as fiscally responsible, particularly for a majority that has emphasized reducing government waste.

For Democrats

Democrats have traditionally supported the WOTC as a tool for moving low-income workers into employment. The lapse gives them a straightforward line of attack. The administration and the Republican Congress are simultaneously proposing to cut benefits for SNAP and TANF recipients, while allowing the one tax credit designed to help those individuals find jobs to expire.

For Employers and Workers

For employers, the lapse means that new hires from eligible populations made after December 31, 2025 generate no federal tax benefit. For workers in the target groups, the lapse removes a financial incentive that may have made them more attractive candidates relative to non-eligible applicants.

The Bottom Line

The WOTC has lapsed before and been revived retroactively. History suggests Congress could restore it and make it apply to hires made during the gap period. But as of now, the credit is dead, and the administration and Congress have not signaled a clear timeline for action.

It means $1.3 billion in annual employer tax incentives have gone dark; certifications for veterans, SNAP recipients, ex-felons, and other workers are piling up at state agencies that cannot process them; and a program designed to make disadvantaged workers more competitive in the labor market is sitting idle at a moment when the administration is pressing those same populations to find work.

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