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Welfare-to-Work Tax Credit
| WHAT IS THE WELFARE-TO-WORK TAX CREDIT? The Welfare-to-Work Tax Credit is a federal income tax credit that encourages employers to hire long-term family assistance recipients who begin to work any time after December 31, 1997, and before January , 2004. Established by the Taxpayer Relief Act of 1997, this new tax credit can reduce employers' federal tax liability by as much as $8,500 per new hire. |
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UPDATE: On October 4, 2004, the President signed into law the Working Families Tax-Relief Act of 2004 (P.L. 108-311). This legislation extends the WOTC program and the WtW tax credits, without change, for a two-year period through December 31, 2005. The reauthorization is retroactive to December 31, 2003 and applies to new hires that begin work for an employer after December 31, 2003 and before January 1, 2006.
WHAT NEW HIRES CAN QUALIFY EMPLOYERS FOR THE WELFARE-TO-WORK TAX CREDIT?
The Welfare-to-Work Tax Credit applies to new hires, that begin work after December 31, 2001, and before January 1, 2004, and are employed at least 400 hours or 180 days.
The Long-Term Welfare or Family Assistance Recipient refers to any individual who has been certified by the "designated local agency" as one, a) who is a member of a family that: received Temporary Assistance to Needy Families (TANF), or Aid to Families with Dependent Children (AFDC) for at least the 18 consecutive months before the date of hire, or b) whose TANF/AFDC eligibility expired under Federal or State law after August 5, 1997, for individuals hired within 2 years after their eligibility expired or; c) who received TANF/AFDC for any 18-month period, and who are hired within 2 years after the end of the earliest 18-month period.
The Welfare-to-Work Tax Credit for new hires employed 400 or more hours or 180 days is 35% of qualified wages for the first year of employment and 50% for the second year. Qualified wages are capped at $10,000 per year. Wages include tax-exempt amounts received under accident or health plans as well as educational assistance and dependent assistance programs.
HOW CAN EMPLOYERS PARTICIPATE IN THE WELFARE-TO-WORK TAX CREDIT?
Employers must apply for and receive certification from their State Employment Security Agency (SESA), also known as the State Workforce Agency (SWA), that their new hire is a long-term TANF/AFDC recipient before they can claim the Welfare-to-Work Tax Credit on their federal tax return.
To apply for certification, employers need only:
- 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, and
- Complete either the one-page U.S. Department of Labor
ETA Form 9062, “Conditional Certification Form,” if provided to the job
seeker by a SESA/SWA or participating agency, e.g., the Job Corps, or
ETA Form 9061, “Individual Characteristics Form,” if the job seeker has
not received a Conditional Certification, and
- Mail the signed IRS 8850 and ETA 9061 or 9062 together to their State Employment
Security Agency/State Workforce Agency WOTC/WtW Coordinator. The IRS 8850 must be mailed within 21 days after the new hire’s employment-start-date.
To get IRS Form 8850, “the Work Opportunity and Welfare-to-Work Tax Credits Pre-Screening Notice and Certification Request” form, and its instructions, download them from http://www.irs.ustreas.gov/ or call 1-800-829-1040.
To get ETA Form 9061, the WOTC “Individual Characteristics Form,” a brochure, and directories of the State and Regional Coordinators, call the new FAX-ON-DEMAND number at 1-877-828-2050. To access this free service, you may call from a fax machine or your touch-tone telephone.
FOR MORE INFORMATION ABOUT THE WELFARE-TO-WORK TAX CREDIT
Call or visit your local public State Employment Security Agency also known as State Workforce Agency WOTC Coordinator (use the above mentioned State Directory), or
Call the U.S. Department of Labor Regional WOTC Coordinator nearest you (use the above mentioned Regional Directory), or
Call Karin Loverud at the Internal Revenue Service (IRS) at 202-622-6080
For information about EZ/EC/RC locations, visit their website at http://www.hud.gov/offices/cpd/economicdevelopment/
programs/rc/index.cfm or call 1-800-998-9999.
For information on the Welfare-to-Work Grant Program, visit their website or call 202-219-5620.
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