The Work Opportunity Tax Credit (WOTC) program was created by the Small Business Job Protection Act of 1996 and the Welfare-to-WorkTax Credit (WtWTC) was created by the Taxpayer Relief Act of 1997.  These two tax credits were reauthorized by the Ticket to Work and Work Incentives Improvement Act of 1999 through December 31, 2001.  On December 31, 2001 the credits legislative authority expired. 

On March 9, 2002 the President signed into law the Job Creation and Worker Assistance Act of 2002 reauthorized and extending the WOTC and WtWTC for 24 months, under sections 51, 51A and 1400L of the Internal Revenue Code (IRC) and creating a new target group under the WOTC program.  The new target group is the "New York Liberty Zone Business Employee".  This target group applies only to those workers and employers affected by the September 11, 2001 terrorist attack.  This reuthorization applies to new hires who begin work for an employer on or after January 1, 2002 through December 31, 2003.  

1. Verifying the eligibility of individuals as members of targeted groups;
      

2. Issuing employer certification and denials; and
      

3. Informing employers about the tax credit programs and providing training and technical assistance.

Tax Credit Programs

Work Opportunity Tax Credit Program | Welfare to Work Tax Credit Program

Work Opportunity Tax Credit (WOTC) Program

The Work Opportunity Tax Credit (WOTC) is a federal income tax credit that can save employers up to $2,400 when they hire someone who is a member of one of eight targeted groups that have traditionally faced significant barriers to employment.

An employer that hires someone from one of the following groups on/or after January 1, 2002 and before January 1, 2004 can claim the WOTC Tax Credit.

1. A welfare recipient who has received benefits for at least 9 of the last 18 months;
      

2. A veteran who has received food stamps for at least 3 consecutive months in the 15 months prior to the date of hire;
      

3. An ex-felon who has been convicted or released from prison within one year of the date of hire and is a member of a low-income family;
      

4. An 18-24 year-old resident of a federally designated Enterprise Community, or Renewal community
      

5. A disabled person who has been referred by the Department of Social and Health Services (DSHS) Division of Vocational Rehabilitation (DVR), and has completed or is completing rehabilitative services from the State or the Veteran’s Administration;
      

6. A 16-17 year-old resident of an Enterprise Community hired as a Summer Youth Employee;
      

7. An 18-24 year-old food stamp recipient who has gotten food stamps for at least 6 consecutive months prior to the date of hire or for at least 3 of the last 5 months and their food stamp eligibility has expired;
      

8. A Supplemental Security Income (SSI) recipient who has received benefits for any month in the 60-day period prior to the date of hire.

Employers can claim up to 40 percent of the first $6,000 in qualified first-year wages for a maximum credit of $2,400 per new hire. Qualified wages are capped at $6,000 for all WOTC target groups except Summer Youth, whose wages are capped at $3,000

Schedule of tax credit:

1-119 hours = No Credit
120-399 hours 25 percent of first $6,000 in qualified wages = $1,500
400+ hours 40 percent of first $6,000 in qualified wages = $2,400

Welfare to Work Tax Credit (WtW) Program

The Welfare to Work (WtW) tax credit is a federal income tax credit that can save employers up to $8,500 over a two year period when they hire long-term family assistance recipients.

In order to be certified eligible, a recipient is a member of a family that:

• Has received Temporary Assistance to Needy Families (TANF) for at least 18 consecutive months ending on the hiring date; or
     

• Has received TANF for a total of at least 18 months beginning after August 5, 1997, and has a hiring date that is not more than two years after the end of the earliest 18 month period; or
     

• Whose TANF eligibility expired under a federal or state law after August 5, 1997, for applicants hired within two years after their eligibility expired.

Employers can claim 35 percent of the qualified wages for the first year of employment, if employed at least 400 hours or 180 days, and 50 percent for the second year. Qualified wages are capped at $10,000 per year with the maximum first year credit of $3,500 and $5,000 for the second year – a maximum total tax credit of $8,500 per new hire. Qualified wages include tax-exempt amounts received under accident or health plans, educational assistance programs, and dependent assistance programs.

Schedule of tax credit:

1-399 hours = No Credit
First year 35 percent of first $10,000 in qualified wages = $3,500
Second year 50 percent of first $10,000 in qualified wages = $5,000

Participation in the program is voluntary. Employees are not required to provide this kind of information to an employer. Therefore, employers first determine whether the applicant is willing to provide the information. If the applicant is willing to provide the information, the employer follows these steps to qualify:

Forms (IRS 8850 and ETA 9061) must be completed with all information requested and must be submitted no later than 21 calendar days from when the applicant starts work. Processing of certificates cannot proceed without a properly completed IRS Form 8850 with original signatures of the employee and employer and either an ETA 9061 or ETA 9062. All untimely applications will be denied.

Tax Credit Limitations

Tax credit is not allowable in the following situations:

1. For wages paid to a rehired employee unless a certification was issued when the employee was hired the first time;
      

2. For wages paid to an on-the-job training (OJT) participant for any employment for which the employer receives federal payments for the OJT;
      

3. For wages paid to a person who replaces a striking or locked-out worker;
      

4. For wages paid to a person who is related to the employer or is a dependent living in the employer’s household;
      

5. For wages paid if the employer failed to submit a timely request for certification; or
      

6. For wages paid to non-resident aliens and H-2A workers.

1. Receive and process forms (IRS 8850, ETA-9061, ETA-9062), and employer requests for tax credit information;
      

2. Verify the eligibility of individuals as members of targeted groups;
      

3. Issue employer certifications and denials;
      

4. Conduct quarterly reviews, through random sample, of the eligibility of individuals certified and establish recordkeeping, reporting processes, and corrective action measures;
      

5. Inform employers and other interested organizations about the tax credit programs and provide training and technical assistance; and
      

6. Prepare and submit quarterly reports to DOL.

The WOTC Administrative Unit maintains complete WOTC/WtW records as required by federal regulations.

Ticket to Work and Work Incentives Improvement Act of 1999; and ETA Handbook No. 408, Second Edition, November 1998.