Work Opportunity Tax Credit Given New Life!

In the midnight hours before adjourning in December, Congress once again extended the Work Opportunity Tax Credit (WOTC) through the end of this year. Along with the extension, Congress combined WOTC and the Welfare to Work Tax Credit, with this combination becoming effective January 1, 2007. The WOTC extension was for two years, with first year being retroactive to January 1, 2006 (the authority on this tax credit expired December 31, 2005.)

Employers who hired eligible individuals during 2006 will now be able to claim the WOTC credit. And, employers can be guaranteed the credit for hires throughout 2007.

Other key modifications of the combined credit include expanded eligibility for WOTC (raised age ceiling for food stamp recipients from 25 to 40), revised eligibility requirements for ex-felons (without regard to family income) and a modification of the filing deadline for WOTC claimants from 21 to 28 days.

For the credit to be used beyond the end of 2007, Congress will once again have to: (1) adopt another short term extension; (2) allow the program to go into suspension until an extension bill can pass through the House and Senate, or, (3) decide to finally make WOTC a permanent provision in the tax code. Historically, Congress allows the WOTC to be suspended before extending it retroactively. Advocates continue to work for a permanent status, so the credit can be more consistently and reliably used as an employment incentive.

WOTC/WTW in Brief- 

Employers may claim a maximum tax credit of $2400 when they hire individuals from groups that are considered to face barriers to employment, including individuals with disabilities who meet certain elibility criteria (see list below). The credit can be claimed by the employer during the first year of employment.
Welfare-to-Work (WTW) Tax Credit

Employers may claim the WTW tax credit if they hire individuals who have received public assistance for an extended period of time. The maximum credit is $3,500 during the employee's first year of employment and $5,000 during the second year.

There are nine target groups for WOTC eligibility: 

1. Qualified recipients of Temporary Assistance to Needy Families (TANF).  

2. Qualified veterans who are receiving Food Stamps.  

3. Qualified economically disadvantaged ex-felons hired no later than one year after conviction or release from prison.  

4. High risk youth ages 18 through 24 who reside in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community.  

5. Vocational Rehabilitation referrals. - An individual who is certified by the designated local agency as: (1) having a physical or mental disability which, for such individual, constitutes or results in a substantial barrier to employment, and (2) was referred to the employer upon, or at any time after, completing or while receiving rehabilitative services pursuant to an individualized written rehabilitation plan (IWRP) under a State plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or a vocational rehabilitation program for veterans carried out under Chapter 31 of Title 38, United States Code.

6. Qualified summer youth ages 16 through 17 who reside in a federally designated Empowerment Zone, Enterprise Community, or Renewal Community and have not previously worked for the employer seeking this tax credit.

7. Qualified Food Stamp recipients ages 18 through 40.

8. Qualified recipients of Supplemental Security Income (SSI). -- Any individual who is certified by the designated local agency as receiving SSI benefits under title XVI of the Social Security Act (including SSI benefits of the type described in section 1616 of such Act or section 212 of Public Law 93-66) for any month ending within the 60-day period ending on the hiring date.

9. Long-term recipients of TANF/Aid to Families with Dependent Children (AFDC).

For more information on WOTC, go to http://www.doleta.gov/business/Incentives/opptax/