Welfare to Work Tax Credits
Extended through December 31, 2003
The Welfare-to-Work Tax Credit is a federal income tax credit
that encourages employers to hire long-term welfare recipients who begin work
any time after December 31, 1997, and before January 1, 2004. The Welfare-to-Work tax
credit (WtWTC) is administered under the Work Opportunity Tax Credit (WOTC)
certification procedures established by the Small Business Job Protection Act
of 1996, as amended.
On March 9, 2002, the President signed into law, P.L. 107-147, the "Job Creation and Worker
Assistance Act of 2002," reauthorizing the WtWTC and the WOTC for 24 additional months through
December 31, 2003, to encourage employers to hire members of the targeted groups with barriers
to employment. This reauthorization is retroactive to the WtWTC and the WOTC’s expiration date
of December 31, 2001.
The Welfare-to-Work tax credit is a tool designed to help people move from
welfare to work and economic self-sufficiency. It joins the WOTC and other
targeted tax credit and employment program initiatives that both help American
workers and increase American productivity and economic growth.
The success of the program has continued. The
Welfare to Work Parnership, a
coalition of business, organizations and government agencies dedicated to
finding work for people who receive public assistance, surveyed 600 of its
members in early 2000. Currently, more than 20,000 businesses, or Business Partners, have committed
to hire or retain former welfare recipients and other unemployed and low-income workers, including
65 of the Fortune 100. Seventy-five percent of the businesses have 250 or fewer employees.
The Welfare to Work Tax Credit can reduce employer federal tax liability by
as much as $8,500 per qualified new hire (hired between January 1,1998, and
January 1, 2004). This credit is not available to nonprofit employers. The new
hires must be long-term welfare recipients; either
Members of a family that received Temporary Assistance for Needy Families
(TANF) for at least the 18 consecutive months before date of hire, or
Members of a family whose TANF eligibility expired under federal or state
law after August 5, 1997, or
Members of a family that received TANF for a total of at least 18 months,
beginning after August 5, 1997,
The following tax credits are available to employers who hire qualified
long-term welfare recipients and employ them at least 400 hours or 180 days:
$3,500 (35% of the first $10,000 eamed first year employed);
$5,000 (50% of the first $10,000 earned second year employed)
Also available to employers is a Work Opportunity Tax Credit (WOTC). Tax
credits are available for qualified individuals hired between January 1, 1998
and January 1, 2004 who belong to one of eight WOTC target groups:
Welfare recipients -- members of a family that received Temporary
Assistance for Needy Families (TANF) for a total of at least nine of the 18
months before date of hire,
18-24 year-old food stamp recipients -- members of a family that received
food stamps for at least six consecutive months before date of hire or for at
least three of the five months before date of hire and their food stamp
eligibility expired,
Veterans who are members of a family that received food stamps for at least
three consecutive months during the 15 months before date of hire,
Vocational rehabilitation referrals -- disabled persons who completed or
are completing rehabilitative services approved by a state or the U.S.
Department of Veteran Affairs,
18-24 year-old EZ/EC residents of one of the 105 federally designated urban
or rural Empowerment Zones or Enterprise Communities,
16-17 year-old EZ/EC residents hired as Summer Youth Employees,
Ex-felons who are members of a low-income family, and
SSI recipients who received Supplemental Security Income benefits for any
month during the 60 days before date of hire
The following percentage of wages can be credited against taxes, up to
$2,400 ($1200 for Summer Youth Employees):
25 percent for individuals who work 120 hours or more during the first year
of employment
40 percent for individuals who work 400 hours or more during the first year
of employment
Process for Utilizing Tax Credits
Complete the one-page IRS Form 8850,
"Pre-Screening Notice and Certification Request for the Work Opportunity
and Welfare-to-Work Tax Credits," by the date the job offer is made, (Form 8850 and instructions for the form
are on the web)
Complete either of the following U.S. Department of Labor forms:
ETA Form 9062, "Conditional Certification Form," if provided to
the job seeker by a participating agency, e.g., the Job Corps, or
ETA Form 9061,
"Individual Characteristics Form," (also on the web) if the new hire
has not been given a conditional certification
