The Work Opportunity Credit provides an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. The credit can be as much as 40% of the "qualified first year wages" you pay to individuals who begin work for you before January 1, 2006. The credit can be claimed by filing Form 5884 (PDF), Work Opportunity Credit.

An individual is a member of a targeted group if he or she is a:

• Qualified recipient of assistance under temporary assistance for needy families (TANF).
• Qualified veteran.
• Qualified ex-felon.
• High-risk youth.
• Vocational rehabilitation referral.
• Qualified summer youth employee.
• Qualified food stamp recipient.
• Qualified SSI recipient.

An individual is not considered a member of a targeted group unless your state employment security agency certifies him or her as a member. This certification requirement can be satisfied in either of two ways:

1. On or before the day on which the individual begins work for you, you have received a certification from your state employment security agency that the individual is a member of a targeted group, or
2. On or before the day you offer employment to an individual, you complete Form 8850 (PDF), Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, and send it to your state employment security agency no later than the 21st day after the individual begins work.

You must receive the certification before claiming the credit.

Refer to Tax Topic 750, Employer Tax Information, and Tax Info for Business, on this site for other employer information.

References:

• Form 5884 (PDF), Work Opportunity Credit
• Form 8850 (PDF), Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits
• Tax Topic 750, Employer Tax Information

Source: www.irs.gov