Tax Credits, Workforce Strategy & the Rise of Non-Traditional Employment
Is the Gig Economy Leaving WOTC Behind?
Tax credits like the Work Opportunity Tax Credit (WOTC) have long helped employers reduce tax liability while supporting inclusive hiring. But as gig workers and 1099 contractors reshape the modern labor market, many decision-makers are asking: Can independent contractors unlock WOTC credits?
The short answer? Not yet. But that might be changing.
As gig-based employment rises across logistics, healthcare, tech, and customer support, WOTC policies could evolve. Understanding current restrictions and the possibilities ahead will help finance leaders and HR teams stay ready for legislative shifts—and explore new ways to build both savings and workforce diversity.
Current WOTC Rules and Contractor Limitations
The Work Opportunity Tax Credit is a federal incentive program that rewards employers for hiring individuals from target groups who face barriers to employment. These include:
- Veterans
- SNAP recipients
- Long-term unemployed individuals
- Ex-felons
- Vocational rehabilitation referrals
WOTC provides a tax credit of up to $9,600 per qualified new W-2 employee.
However, the IRS currently limits WOTC eligibility to employees, not independent contractors. The Form 8850 and ETA Form 9061 filings required for WOTC certification are valid only for workers categorized under W-2 employment.
This is a critical distinction. Gig workers and 1099 contractors are considered self-employed under IRS classification, which excludes them from employer-based tax credit programs.
Why Does That Matter?
The economic value of WOTC can be significant for businesses that rely on consistent hiring. Many of the industries that use gig or freelance talent most heavily—such as logistics, hospitality, delivery, and home services—also frequently work with individuals who could qualify under WOTC if not for their employment status.
This misalignment between hiring models and tax incentives creates both a missed opportunity and a growing policy challenge.
A Shifting Labor Model and New Pressure for Policy Change
Studies from MBO Partners, McKinsey Global Institute, and Upwork estimate that between 25% and 43% of U.S. adults have participated in non-standard work—including supplemental gigs, freelance assignments, or platform-based income—at some point. That equates to over 42 million Americans in 2025 who engage in gig work in some capacity. That number is expected to grow by 2026 as companies adopt more flexible staffing models to meet customer demand.
These surveys capture a broad picture of how workers combine traditional employment with flexible or project-based work, highlighting the urgent need for policies like WOTC to be reshaped to support today’s evolving workforce.
At the same time, the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) are revisiting definitions of employee vs. contractor across several regulatory areas. While this poses compliance challenges, it also creates an opportunity for WOTC modernization.
What Employers Can Do Now
Until WOTC expands to include contractors, employers who rely heavily on 1099 workers can still take strategic steps:
- Audit your workforce mix: Identify roles that could shift to W-2 status and qualify for WOTC.
- Prioritize compliant hiring: Use technology to screen for WOTC-eligible W-2 candidates early in the process.
- Track potential policy changes: Work with a compliance partner to monitor legislative developments.
- Invest in automation: Integrate screening into onboarding to capture available credits efficiently.
If your company uses both employees and contractors, optimizing your W-2 hiring pipeline can yield credit opportunities while aligning with compliance.
What’s Next: Future Outlook and Policy Possibilities
There are three likely directions WOTC may take as gig work expands:
|
Possibility |
Impact on Employers |
|
Status Quo Maintained |
1099 contractors remain ineligible for WOTC |
|
Selective Expansion |
Tax credit eligibility broadened for hybrid workforces |
|
Full Modernization |
WOTC redesigned to include gig roles with stipulations |
If permanent WOTC reauthorization occurs post-2025, it may coincide with other employment policy reforms. Employers who prepare now will have a first-mover advantage if and when the definition of eligibility changes.
How WOTC by HRlogics Helps You Capture More Credit Opportunities
WOTC by HRlogics empowers employers to turn inclusive hiring into strategic tax savings—without adding complexity to your HR workflows.
Our full-service platform, Total WOTC, simplifies and automates every stage of the WOTC lifecycle so you can focus on building your workforce while we handle compliance and optimization.
Here’s how it works:
- Automated Eligibility Screening
Flag qualifying new hires in real time through digital WOTC questionnaires embedded into your onboarding process—fully integrated with your existing HR tech. - State-Specific Submissions
Submit required forms directly through secure state portals using our automated API, customized for each jurisdiction’s process. - Documentation Management
Our in-house WOTC team manages all supporting documents, follow-ups, and compliance deadlines to ensure your claims are accurate and audit-ready. - Real-Time Tracking & Custom Reports
Monitor credits earned, application statuses, and ROI in a live dashboard. Create scheduled or on-demand reports for HR, tax, or finance teams.
With up to $9,600 per eligible hire and 20% of new W-2 employees typically qualifying, the potential savings can add up quickly—especially in industries with high turnover or frequent hiring.
Plan Smarter, Earn More: WOTC Readiness Starts Now
The gig economy isn’t slowing down, and tax credit policy can’t afford to ignore it.
By staying ahead of policy shifts and ensuring compliance where credits already apply, HR and finance leaders can future-proof their hiring strategy and improve ROI.
HRlogics offers WOTC solutions that help employers capture every available tax credit with ease. We combine automated screening tools, state-specific compliance workflows, and expert guidance to help your team maximize credit eligibility under current law—and stay prepared for what comes next.
WOTC may not cover contractors today. But tomorrow’s rules will belong to those who plan ahead.
Schedule a WOTC by HRlogics demo today, and you’ll be ready for what’s next—without missing what’s available now.
