The Work Opportunity Tax Credit
Benjamin Collins
Analyst in Labor Policy
Sarah A. Donovan
Analyst in Labor Policy
January 9, 2015
Congressional Research Service
7-5700
www.crs.gov
R43729
The Work Opportunity Tax Credit
Summary
The Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code that
allows employers that hire individuals with certain personal characteristics to claim a tax credit
equal to a portion of the wages paid to those individuals. WOTC-eligible populations include
recipients of certain public benefits (such as the Supplemental Nutrition Assistance Program or
Temporary Assistance to Needy Families), qualified veterans, ex-felons, and other specified
populations.
The authorization of the WOTC is currently lapsed and, under current law, employers are not able
to claim the credit for employees who begin work after December 31, 2014. The credit has lapsed
a number of times since its enactment and Congress has routinely reauthorized the credit with
retroactive provisions. During lapses, the Department of Labor typically instructs state workforce
agencies to continue to accept WOTC applications.
Under its most recent authorization, the amount of the WOTC is calculated as a percentage of
qualified wages paid to an eligible worker during the worker’s first year of employment, up to a
statutory maximum. An employer may claim a credit equal to 40% of an eligible employee’s
qualified wages if the qualified employee worked at least 400 hours during the first year of
employment, up to a statutory maximum. If the employee worked fewer than 400 hours but more
than 120 hours, the employer may claim a credit equal to 25% of the employee’s qualified wages.
If the employee worked fewer than 120 hours, an employer may not claim the WOTC. The
WOTC is a nonrefundable tax credit, so an employer must have had tax liability to claim it.
Statute defines the maximum amount of qualified wages that were WOTC-eligible, so the
maximum credit is equal to 40% of these statutory limits. The limit of wages that are WOTC-
eligible varies by the characteristics of the worker. The most common wage ceiling is $6,000 (for
a maximum credit of $2,400), though some subpopulations are eligible for a higher or lower
maximum.
To claim the WOTC, an employer must have the employee certified as eligible by the appropriate
state workforce agency. To do this, the employer submits a form to the state agency within 28
days of hiring the WOTC-eligible worker. The state agency determines that the individual meets
the requirements and certifies the application. The employer may claim the credit as part of the
General Business Credit. These credits can be carried back one tax year or carried forward up to
20 tax years.
Definitive data on WOTC usage are not available. Data on the number of individuals certified by
state workforce agencies are available, but these data likely include some individuals who were
certified for the WOTC but did not work the minimum number of hours necessary for the
employer to be eligible for the credit. The Internal Revenue Service publishes data on the dollar
amount of credits claimed by corporations, but these data omit when the credit is claimed by sole
proprietors or other pass-through entities. Furthermore, since the WOTC may be claimed in a
prior or subsequent tax year, the IRS data may not reflect hiring activity during that tax year.
Congressional Research Service
The Work Opportunity Tax Credit
Contents
Current Status .................................................................................................................................. 1
Past Expirations and Reauthorizations ...................................................................................... 1
Rationale for the WOTC .................................................................................................................. 2
Calculation of Credit and Maximum Credits ................................................................................... 3
Eligible Worker Populations ............................................................................................................ 3
Eligible Employers .......................................................................................................................... 5
Mechanics of the WOTC ................................................................................................................. 5
Usage and Costs ............................................................................................................................... 6
Data on Individuals Certified for the WOTC ............................................................................ 7
Data on Employers Claiming the WOTC .................................................................................. 7
Research and Studies of the WOTC ................................................................................................ 8
Tables
Table 1. Legislation Extending the Work Opportunity Tax Credit .................................................. 2
Table 2. Populations Eligible for the Work Opportunity Tax Credit ................................................ 5
Table 3. WOTC Certification by Target Population, FY2009-FY2013 ........................................... 7
Appendixes
Appendix. Legislative History ....................................................................................................... 10
Contacts
Author Contact Information........................................................................................................... 14
Congressional Research Service
The Work Opportunity Tax Credit
he Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code
(Title 26 of the U.S. Code) that provides a tax credit to employers that hire workers with
Tcertain personal characteristics. The provisions in the authorizing legislation that most
recently authorized the WOTC offer the credit to employers that hire veterans, recipients of
certain public benefits, or other specified populations. Under these provisions, the credit is
calculated as a percent of the eligible employee’s wages, up to a statutory maximum. The
maximum eligible wages (and corresponding credit) per worker depend on the worker’s specific
characteristics.
Current Status
The WOTC section of the Internal Revenue Code specifies an expiration date in the definition of
WOTC-eligible wages. Under current law, wages earned by eligible workers who begin work
after December 31, 2014, are not eligible for the WOTC.1
Historically, WOTC has lapsed a number of times and then been retroactively reauthorized. In
many cases, it is reauthorized alongside other tax provisions in legislation known as “tax
extenders.”2 Due to this trend, the Department of Labor (DOL) has typically instructed states to
continue to process WOTC applications.
Since the WOTC can be carried over into subsequent tax years (see the “Mechanics of the
WOTC” section later in this report), it is also likely that some employers will be benefiting from
the WOTC in the future, even if Congress does not act to reauthorize the credit. In light of these
circumstances, this report will refer to WOTC policy in the present tense. However, it is
important for readers to note that absent congressional action to reauthorize the credit, employers
will not be able to claim the WOTC for employees who begin working after December 31, 2014.
Past Expirations and Reauthorizations
Authorization for the WOTC has lapsed a number of times. The credit has typically been renewed
with retroactive provisions.3 A brief summary of recent legislation that extended WOTC
authorization is in Table 1. A more detailed legislative history is in the Appendix of this report.
The WOTC’s duration is limited by language in the law that specifies that wages paid to an
eligible worker hired after a certain date are ineligible for the WOTC. Under current law, wages
earned by workers hired after December 31, 2014, are not eligible for the WOTC. There is no
beginning date in the law regarding eligible hires. This construction means that simply extending
the ending date in the law extends the program with retroactivity.
For example, the WOTC lapsed after December 31, 2013. When Congress enacted the Tax
Increase Prevention Act of 2014 in December 2014, the new law changed the ending date in the
1 See 26 U.S.C. 51(c)(4).
2 For a more detailed discussion of tax extenders legislation, see CRS Report R43124, Expired and Expiring
Temporary Tax Provisions (“Tax Extenders”).
3 While the WOTC itself is typically renewed, some populations covered by the WOTC have been permitted to
permanently expire.
Congressional Research Service
1
The Work Opportunity Tax Credit
definition of WOTC-eligible wages to December 31, 2014. Since there was only an ending date
in the newly enacted law, wages paid to WOTC-eligible hires who began work between January
1, 2014, and December 31, 2014 (the expiration date enacted in the new law), met the definition
of WOTC-covered wages.
Table 1. Legislation Extending the Work Opportunity Tax Credit
Amended Expiration
Public Law Number
Date of Enactment
Date of WOTC
P.L. 104-188
08/20/1996
September 30, 1997
P.L. 105-34
09/03/1997
June 30, 1998
P.L. 105-277
10/21/1998
June 30, 1999
P.L. 106-170
12/17/1999
December 31, 2001
P.L. 107-147
03/09/2002
December 31, 2003
P.L. 108-311
10/04/2004
December 31, 2005
P.L. 109-432
12/20/2006
December 31, 2007
P.L. 110-28
05/25/2007
August 31, 2011
P.L. 111-312
12/17/2010
December 31, 2011
P.L. 112-56
11/21/2011
December 31, 2012a
P.L. 112-240
01/02/2013
December 31, 2013
P.L. 113-295
12/19/2014
December 31, 2014
Source: CRS analysis of listed legislation.
Notes: Table does not include legislation that amended WOTC provisions but did not change the expiration
date.
a. Extension applied to qualified veterans only.
Rationale for the WOTC
Many tax credits are designed to incentivize individuals or employers to make a specific choice.
In the case of the WOTC, the credit is designed to incentivize employers to hire employees with
certain characteristics by subsidizing a portion of the qualified worker’s wage. If an employer has
a choice between hiring two identical applicants, one of whom is eligible for the WOTC and one
of whom is not, the employer may opt to hire the WOTC-eligible applicant because employing
that worker will have a lower after-tax cost.
The WOTC is designed to provide assistance in the labor market to certain workers. It is not
designed to stimulate the creation of new jobs. An eligible hire may be an additional employee of
a firm or it may replace a separated employee. Credits that incentivize hiring and initial periods of
employment (like the WOTC) may benefit high-turnover employers more than employers with
low rates of turnover.
Congressional Research Service
2
The Work Opportunity Tax Credit
Calculation of Credit and Maximum Credits
Under its most recent authorization, the amount of the WOTC is calculated as percentage of
qualified wages paid to an eligible worker during the eligible employee’s first year of
employment. An employer may claim a credit equal to 40% of the eligible employee’s qualified
wages if the eligible worker works at least 400 hours during the first year of employment. If the
eligible employee works fewer than 400 hours but at least 120 hours, the employer may claim a
credit equal to 25% of the eligible employee’s wages. If the eligible employee works fewer than
120 hours, an employer may not claim the WOTC.
Statute defines the maximum amount of qualified wages that are WOTC-eligible for each eligible
population, so the maximum credit would be equal to 40% of these statutory limits. For example,
the maximum eligible wages for a qualified ex-felon is $6,000, so the maximum credit for an
employer that hired such an individual would be 40% of $6,000 or $2,400.
The maximum amount of WOTC-eligible wages varies by the workers’ characteristics. The
qualified amount of wages for each population is described in the subsequent section.
Eligible Worker Populations
This section describes the populations eligible for the WOTC under its most recent (and currently
expired) authorization. Since the WOTC was enacted in the 104th Congress, the eligible
populations have varied. A discussion of the evolution of the WOTC and covered populations is
in the Legislative History in the Appendix of this report.
The most recent authorization of the WOTC specifies populations that are eligible for the WOTC.
For most target groups, the maximum wages that are eligible for WOTC credit are $6,000.
Assuming the eligible employee works at least 400 hours and the employer claims the full 40%
credit, the maximum credit would equal $2,400. Some eligible populations have different levels
of qualified wages. Populations with maximum wages that are higher or lower than $6,000 are
noted in their descriptions.
1. Temporary Assistance to Needy Families (TANF) recipient (listed in the law as
“qualified IV-A recipient,”) which refers to the Title of the Social Security Act
that authorizes TANF. A WOTC-eligible TANF recipient is an individual who is a
member of a family receiving assistance under a IV-A program for any 9 of the
18 months prior to the worker’s hire date.
2. Qualified veteran is a worker who served on active duty in the United States
armed forces for at least 180 days, has been discharged for at least 60 days, and
meets at least one of the additional criteria listed below:
• A veteran who is a member of a family receiving Supplemental Nutrition
Assistance Program (SNAP) assistance for at least 3 of the past 12
months.
• A veteran with a service-connected disability for which he or she is
entitled to compensation and who is within one year of discharge
(maximum WOTC-eligible wages of $12,000).
Congressional Research Service
3
The Work Opportunity Tax Credit
• A veteran with a service-connected disability for which he or she is
entitled to compensation and who has been unemployed for at least six
months of the prior year (maximum WOTC-eligible wages of $24,000).
• A veteran with an aggregate period of unemployment of at least four
weeks but less than six months during the prior one year.
• A veteran with an aggregate period of unemployment of at least six
months during the prior year (maximum WOTC-eligible wages of
$14,000)
3. Qualified ex-felon is an individual who has been convicted of a felony under state
or federal law and has a hiring date that is within one year of either the
individual’s conviction or release from prison.
4. Designated Community Resident is an individual between the ages of 18 and 39
that has “a principal place of abode within an empowerment zone, enterprise
community, renewal community, or rural renewal county.”
5. Vocational Rehabilitation Referral is a person with a physical or mental disability
who is receiving or has received services under a state vocational rehabilitation
program, the Department of Veterans Affairs Vocational Rehabilitation and
Employment program, or an employment network through the Social Security
Ticket to Work program.
6. Summer Youth Employee is an individual age 16 or 17 who has a “principal place
of abode within an empowerment zone, enterprise community, or renewal
community” and is employed between May 1 and September 15 (maximum
WOTC-eligible wages of $3,000).
7. Qualified SNAP recipient is between the ages of 18 and 39 and either (1) is a
member of a family receiving SNAP benefits for the six-month period ending on
the hiring date or (2) received benefits for at least three months of the five-month
period ending on the hiring date, in the case of able-bodied adults without
dependents (ABAWDs) who cease to be eligible for assistance under the work
requirement at Section 6(o) of the Food and Nutrition Act of 2008.4
8. Supplemental Security Income (SSI) recipient is an individual who has received
SSI under Title XVI of the Social Security Act for any month ending within the
60-day period ending on the hiring date.
9. Long-term TANF Recipient (listed in the law as “long-term family assistance
recipient”) is a member of a family that has been receiving TANF benefits for the
past 18 months or has exhausted TANF benefits in the past two years. Unlike
other populations, an employer may claim the WOTC on behalf of a long-term
family assistance recipient for two years. The maximum wages eligible for the
WOTC for long-term family assistance recipients is $10,000 per year. During the
second year of employment, the WOTC is equal to 50% of the eligible worker’s
wages.
4 The SNAP provisions regarding able-bodied adults without dependents only apply to persons between the ages of 18
and 49. As such, persons between the ages of 40 and 49 would meet the ABAWD criteria, but not be eligible for the
WOTC.
Congressional Research Service
4
The Work Opportunity Tax Credit
Table 2. Populations Eligible for the Work Opportunity Tax Credit
Under Tax Increase Prevention Act of 2014 (P.L. 113-295)
Maximum WOTC-Eligible Wages
Population
(maximum credit is 40% of eligible wages)
TANF Recipients
$6,000
Veterans
$6,000 to $24,000
Ex-felons $6,000
Designated Community Residents
$6,000
Vocational Rehabilitation Referrals
$6,000
Summer Youth Employees
$3,000
SNAP Recipients
$6,000
SSI Recipients
$6,000
Long-term TANF Recipients
$10,000 per year for up to two yearsa
Source: CRS analysis of Sections 51 and 52 of the Internal Revenue Code.
Notes: P.L. 113-295 applied WOTC to wages paid to workers hired through December 31, 2014.
a. In the second year of employment, the WOTC equals 50% of eligible second-year wages for long-term
TANF recipients.
Eligible Employers
WOTC is a non-refundable credit. As such, an employer must have tax liability to claim the
credit. Since the WOTC can be claimed in a tax year subsequent to the year of hire, it is possible
that an employer that hires a WOTC-eligible worker, but does not have tax liability in the year in
which the eligible worker was hired, would be able to have the WOTC applied to a subsequent
tax year in which the employer has tax liability.
Under the most recent (and currently expired) provisions, tax-exempt organizations that employ
WOTC-eligible veterans may be eligible to claim a credit against the organization’s payroll tax
liability. This provision is limited to organizations that employ qualified veterans and does not
apply to tax-exempt organizations that employ other WOTC-eligible populations.
Mechanics of the WOTC
Individuals’ eligibility for the WOTC is determined by state workforce agencies (SWAs). These
state agencies also process WOTC certifications.5
5 Employer-directed guidance from the U.S. Department of Labor, including links to relevant state agencies, is
available at http://www.doleta.gov/business/incentives/opptax/PDF/employers_wotc_program_brochure_5_24_12.pdf.
Congressional Research Service
5
The Work Opportunity Tax Credit
The eligibility determination process can follow one of two paths:
• An eligible group member obtains a conditional certification (ETA Form
9062) from a participating state or local agency. The jobseeker then uses it to
market himself or herself to an employer. The employer completes a pre-
screening/certification request (IRS Form 8850) by the date a job offer is
made and mails both the IRS and ETA forms to the state’s WOTC
coordinator within 28 days after the new hire starts working.
• An employer completes IRS Form 8850 by the date a job offer is made to an
applicant believed to belong to the WOTC population. The employer also
completes the individual characteristics information (ETA Form 9061). The
IRS and ETA forms must be mailed to the state’s WOTC coordinator within
28 days after the new hire starts working.6
States then verify that an individual is a member of a covered group and notify the employer that
the application has been certified. States receive grants from DOL to support the administrative
costs of processing WOTC certifications.
Once a new hire is certified, the employer may claim WOTC as part of the General Business
Credit.7 If an employer does not have tax liability in the tax year that the WOTC-eligible worker
was hired, the credit from the WOTC—as part of the General Business Credit—can be carried
back up to one year or carried forward up 20 years before expiring.
As noted in each of the two scenarios above, the IRS Form 8850 must be submitted within 28
days after the eligible hire begins work. This requirement continues during periods of lapsed
authorization.
Usage and Costs
Definitive data on the usage and costs of the WOTC are not available. However, data from DOL
on workers certified for the WOTC and data from the IRS on WOTC claims by certain entities
can offer some insight into usage of the credit.
DOL tracks the number of individuals who are certified as eligible for the WOTC, but, since not
every certified worker meets the employment retention requirements, it is very likely that the
number of individuals on behalf of whom the WOTC is claimed is lower.
The primary costs of WOTC to the government are foregone tax revenue.8 The IRS annually
reports WOTC credits claimed by some employers. However, due to excluded employers and
employers’ ability to apply the WOTC to prior or subsequent tax years, the IRS data may not
fully reflect the level of WOTC-based hiring during the reference year.
6 Before January 1, 2007, employers had 21 days to mail IRS Form 8850 to their state’s WOTC coordinator.
7 Employers have three years starting from the due date for filing a tax return to claim the WOTC. For more
information on the General Business Credit, including other credits that fall under its purview, see IRS Instructions for
Form 3800 at http://www.irs.gov/pub/irs-pdf/i3800.pdf.
8 As noted previously, Congress appropriates less than $20 million per year for states’ WOTC administrative costs.
Congressional Research Service
6
The Work Opportunity Tax Credit
Data on Individuals Certified for the WOTC
The U.S. Employment Service in the Employment and Training Administration collects figures
on the number of certifications issued to employers. The number of certifications is likely more
than the number of employees for whom employers claim credits because not all eligible hires
fulfill the retention requirement. The government does not collect statistics on the number of
individuals for whom the credits actually are claimed. It would be difficult to reconcile the
number of certifications and the number of credits claimed in a given tax year because companies
that receive a certification for an eligible individual hired late in one tax year may not claim a
credit for them until a following tax year, when the retention requirement has been met. In
addition, credits claimed for persons certified in one year may be applied against income tax
liabilities in past or future tax years.
Table 3 presents data on WOTC certifications from FY2009-FY2013. In FY2013, there were
about 1.5 million WOTC certifications, with SNAP recipients accounting for approximately
three-quarters of the certifications.
Table 3. WOTC Certification by Target Population, FY2009-FY2013
FY2009 FY2010 FY2011 FY2012 FY2013
TANF
Recipients
67,985 51,221 53,455 45,824 72,759
Veteransa
9,575 11,496 14,595 33,238 75,859
Ex-Felons
43,703 36,479 34,731 22,063 43,485
Designated
Community
Residents
22,837 65,495 60,631 50,589 66,746
Vocational
Rehabilitation
Referrals
17,099 16,862 15,762 13,475 28,764
Summer Youth Employees
2,422
2,957
608
384
505
SNAP
Recipients
518,208 499,927 684,612 602,540
1,173,152
SSI
Recipients
19,542 12,701 12,458 10,981 16,474
Long-Term TANF Recipients
17,502
65,447
79,365
71,407
102,924
Otherb
941 151,906 204,306 41,690 10,332
Total
719,814 914,491
1,160,523 892,191
1,591,000
Source: CRS presentation of data obtained directly from the Department of Labor in September 2014.
a. Includes veterans certified under the most recent eligibility criteria as extended under P.L. 112-240.
b. Includes individuals who were eligible under criteria established under the American Recovery and
Reinvestment Act of 2009. These criteria expired after December 31, 2010, but states continue to process
certifications received prior to the expiration date.
Data on Employers Claiming the WOTC
Most of the costs to the government from tax credits are in the form of revenue forgone rather
than appropriated funds.9 Data publicly available from the IRS show that for tax year 2011 (the
most recent year available), corporations claimed $795 million in current year WOTC as part of
9 Spending for states’ administration of the WOTC is typically about $20 million per year.
Congressional Research Service
7
The Work Opportunity Tax Credit
the general business credit.10 However, this does not reflect WOTC claimed on individual tax
returns by sole-proprietors or pass-thru entities (such as partnerships), or carryover of WOTC
from other tax years. The Office of Management and Budget estimated that in FY2013, WOTC
claims by corporations were $670 million and claims by individuals totaled $230 million.11
Research and Studies of the WOTC
Studies of federal employment tax credits have been limited in purpose or scale. Shortly after the
State Employment Security Agencies (SESA) began implementing the WOTC in late 1996, the
United States Department of Labor (DOL) contracted for an evaluation of its administrative
process. Among other things brought out in the August 1997 study, state WOTC coordinators
recommended that the paperwork burden on employers be reduced and Form 8850 be made less
confusing so that employers would be more inclined to participate.12
In March 2001, the General Accounting Office (GAO; now the Government Accountability
Office) surveyed a sample of employers who used the WOTC program in California and Texas,
two states with high certification levels. The study’s chief goal was to ascertain whether
employers fired workers who were not eligible for the WOTC or who were no longer eligible for
the WOTC in order to maximize receipt of the credit. The GAO concluded that—while it could
not definitely determine the extent of displacement and churning, respectively, across all
employers who participate in the program—the sample data suggest that employers do not view
the practice of churning employees to maximize WOTC receipt as cost-effective and therefore
would not engage in much, if any, churning. GAO’s estimate that the WOTC offsets less than
one-half of the cost of recruiting, hiring and training credit-eligible workers, on average, supports
the employers’ belief that churning practices are not cost-effective. Regarding churning, certified
workers in the two states were found to be no more frequently terminated when their earnings
totaled about $6,000 (the credit-maximizing level).13
Another study of employment tax credits that was undertaken for the DOL was released in March
2001. Interviews of 16 establishments that had used the credits were conducted in five states
(California, Georgia, Maryland, Missouri, and Wisconsin). As in the case of the GAO study, the
authors emphasized that their findings cannot be generalized to all other user firms. Among the
report’s results are the following:
• “the tax credits play little or no role in [the 16 employers’] recruitment
policies,” suggesting that employers would have hired members of the target
groups even if the programs were not available;
• as credit-eligible hires’ job performance, work readiness, attendance and
punctuality were like those of ineligible employees in similar positions, most
10 Internal Revenue Service, Corporation Complete Report, Table 21, available at http://www.irs.gov/pub/irs-soi/
11coccr.pdf.
11 Office of Management and Budget, Fiscal Year 2015 Analytical Perspectives: Budget of the U.S. Government,
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/spec.pdf, page 207, Table 14-1.
12 Westat, Process Evaluation of the WOTC Program (DOL, Employment and Training Administration, Office of
Strategic Planning and Policy Development, August 1997).
13 GAO, Work Opportunity Tax Credit: Employers Do Not Appear to Dismiss Employees to Increase Tax Credits,
March 2001, http://www.gao.gov/new.items/d01329.pdf.
Congressional Research Service
8
The Work Opportunity Tax Credit
of the interviewed employers thought there was no need for special training
or counseling programs;
• the target-group members who were hired exhibited the high rates of
turnover typical of low-wage workers,14 which meant that the interviewed
employers were able to claim the maximum credit for relatively few eligible
hires; and
• the 16 employers gave the programs a positive assessment, although they
offered some suggestions for improvement having to do with program
administration (e.g., consolidate and streamline the forms), program design
(e.g., broaden target-group eligibility criteria),15 and promotion of the
program (e.g., increase use of conditional certifications).
The report’s authors recommended among other things that a study with a larger, representative
sample of employers be conducted, as “these observations do raise a question about the extent to
which the tax credit is serving the purpose for which it is intended—to serve as an economic
incentive to encourage employers to hire individuals from specified target groups whom they
would not have hired in the absence of the credit.”16
In a second GAO report from December 2002, the GAO attempted to examine specifically the
few tax incentives available for hiring, retaining, and accommodating workers with disabilities.
Persons with disabilities are the focus of two WOTC-eligible groups, namely, vocational
rehabilitation referrals and Supplemental Security Income (SSI) recipients. Based upon an
analysis of 1999 tax year data from the Internal Revenue Service (IRS), the GAO found that
relatively few employers utilize the WOTC to hire workers with disabilities. Data on employer
usage by WOTC-eligible group are not available from IRS data. However, according to the
agency’s interviews with government officials and academic experts, relatively few persons with
disabilities may have the credit claimed on their behalf because WOTC eligibility is limited to
disabled individuals receiving publicly funded vocational rehabilitation or SSI benefits. Perhaps
not surprisingly, then, interviewees supported expanding the WOTC’s coverage of disabled
persons. The agency also identified two national surveys related to disability employment issues
which determined that a very small share of supervisors of employees with disabilities were
aware of employment tax incentives and that human resource managers regarded business tax
incentives as less effective than any of the following measures in reducing obstacles to the
employment of persons with disabilities: top-management commitment, staff training, mentoring,
on-site consultation and technical assistance, and short-term outside assistance.17
CRS was not able to identify any federally supported research on the WOTC subsequent to 2002.
14 WOTC hires generally were paid the same entry-level wages as other hires, which largely ranged between $5.15 and
$8.00 an hour.
15 These two recommendations echo those made in the 1997 process evaluation.
16 Westat and Decision Information Resources, Inc., Employers’ Use and Assessment of the WOTC and Welfare-to-
Work Tax Credits Program (DOL, Employment and Training Administration, Office of Policy and Research, March
2001).
17 GAO, Business Tax Incentives to Employ Workers with Disabilities Receive Limited Use and Have an Uncertain
Impact, GAO-03-39, December 2002, http://www.gao.gov/new.items/d0339.pdf.
Congressional Research Service
9
The Work Opportunity Tax Credit
Appendix. Legislative History
WOTC is a temporary provision of the Internal Revenue Code. As noted previously, the credit has
lapsed a number of times before being retroactively reauthorized. In addition to extending the
duration of the credit, reauthorization legislation has changed the eligible populations and
maximum credit levels. In other instances, legislation has changed WOTC-eligible populations
and credit levels without extending the duration of authorization.
In addition to the WOTC, this legislative history also discusses the Welfare to Work (WtW) Tax
Credit, which existed from 1997 to 2006. In 2007, the Welfare to Work Tax Credit was repealed
and the credit’s eligible population was incorporated into the WOTC population.
104th Congress
The WOTC was created by Section 1201 of the Small Business Job Protection Act of 1996 (P.L.
104-188). It allowed for-profit employers to claim a tax credit against their federal income tax
liabilities for hiring members of seven specifically designated groups from October 1, 1996,
through September 30, 1997.
105th Congress
The Taxpayer Relief Act of 1997 (P.L. 105-34) substantially revised the program by shortening
the minimum employment requirement to 120 hours and creating a two-tier subsidy based on the
length of retention. It also extended the credit for nine months from October 1, 1997, through
June 30, 1998.
P.L. 105-34 also created the Welfare to Work (WtW) tax credit, which offered incentives to
employers that hired long-term recipients of Title IV-A benefits. As noted previously, this credit
would eventually be incorporated into the “long-term family assistance recipients” credit under
WOTC.
WOTC lapsed for almost four months before being reauthorized for one year (through June 30,
1999) retroactive to its expiration date in the Omnibus Consolidated and Emergency
Appropriations Act, 1999 (P.L. 105-277).
106th Congress
The 106th Congress reauthorized WOTC retroactive to its expiration date and extended the credit
through December 31, 2001, in the Ticket to Work and Work Incentives Improvement Act of 1999
(P.L. 106-170). This law also extended the WtW credit for the same period.
The 106th Congress later expanded the definition of the “high risk” and “summer youth” groups
to include renewal communities (effective January 1, 2002) through passage of the Consolidated
Appropriations Act, 2001 (P.L. 106-554).
Congressional Research Service
10
The Work Opportunity Tax Credit
107th Congress
After about a two-month lapse, the Job Creation and Worker Assistance Act of 2002 (P.L. 107-
147) reauthorized the WOTC. It extended the credit through December 31, 2003.
New York Liberty Zone Employees
The economic stimulus measure also amended the WOTC’s eligible population to add “New York
Liberty Zone business employees.” Qualified businesses were defined as firms with 200 or fewer
employees located in the vicinity of the World Trade Center as well as those that, due to property
destruction or damage associated with the September 11 terrorist attack, had to relocate to other
sections of New York City. While the other WOTC group members must be new hires in order for
firms to claim a credit, New York Liberty Zone business employees were both existing and newly
hired employees. The number of workers for whom firms that relocated elsewhere in New York
City could claim the credit was limited to those on the employers’ payrolls as of September 11,
2001; the cap did not apply to firms that remained in the zone or that moved into the zone. A
qualified business could claim the WOTC for an eligible employee in 2002, 2003, or both years.
The portion of the WOTC associated with the new target group was allowed against the
alternative minimum tax.
108th Congress
The first WOTC-related law enacted by the 108th Congress was P.L. 108-203, the Social Security
Protection Act of 2004. Among other provisions, the act modified the definition of the WOTC’s
vocational rehabilitation referral-eligible group in light of the Ticket to Work and Work Incentives
Improvement Act of 1999. It effectively expanded the group to include disabled individuals with
individualized work plans who are referred to employers not only by a state vocational
rehabilitation agency (as was the case under prior law), but also by “employment networks” that
were created by the Ticket to Work legislation. P.L. 108-203 did not extend the authorization for
WOTC.
Later in the 108th Congress, President George W. Bush signed P.L. 108-311, the Working Families
Tax Relief Act of 2004, which extended unrevised versions of the WOTC and WtW credit
through December 31, 2005.
109th Congress
The 109th Congress made two substantial changes to the tax provisions. Some changes were
temporary, others were permanent.
Hurricane Disaster Relief
Congress temporarily expanded the WOTC eligible-groups to include “a Hurricane Katrina
employee” as part of its emergency response. P.L. 109-73 added to the WOTC-eligible groups
persons whose principal place of abode on August 28, 2005, was in the core disaster area and
who,
Congressional Research Service
11
The Work Opportunity Tax Credit
• beginning on such date and to August 28, 2007, is hired for a position
principally located in the core disaster area; and
• beginning on such date and to December 31, 2005, is hired for a position
regardless of its location.
The WOTC’s rule denying its application to wages of employees who had worked for the same
employer at any prior time (except for those on the employer’s payroll on August 28, 2005) is
waived, as is the usual certification process.
Modifying the WOTC and Incorporating the WtW Credit into the WOTC
The WOTC and WtW credit expired after December 31, 2005. The credits remained lapsed for
nearly a full year. In December 2006, P.L. 109-432 (the Tax Relief and Health Care Act of 2006)
reauthorized the WOTC for two years, extending its expiration date to December 31, 2007. P.L.
109-432 also scheduled the consolidation of the WtW into the WOTC.
Changes to the WOTC credit became effective for persons hired after December 31, 2006. They
are as follows:
• WOTC-eligibility for ex-felons was expanded by eliminating the requirement
that they are members of economically disadvantaged families;
• WOTC-eligibility of food stamp recipients was expanded from 18- to 24-
year-olds to include 25- to 39-year-olds;
• employers can file the required paperwork with their state’s WOTC
coordinator within 28 (rather than 21) days of an eligible-hire starting to
work for them; and
• the WtW credit was repealed as a separate tax provision, with its eligible-
group of long-term family assistance recipients uniquely handled under the
WOTC effective January 1, 2007.
110th Congress
Expansion of Certain Eligible Groups and Extension to August 2011
In May 2007, the President signed H.R. 2206 (the U.S. Troop Readiness, Veterans’ Care, Katrina
Recovery, and Iraq Accountability Act of 2007, P.L. 110-28) into law. P.L. 110-28 extended the
WOTC for three-and-one-half years through August 31, 2011, raises the age limit for “designated
community residents” to less than 40 years old, and clarifies the definition of vocational
rehabilitation referrals. The act also adds “rural renewal county” to the places of residence for
designated community residents. The law also adopts a revised definition of disabled veterans.
“Hurricane Katrina Employees”
In the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (P.L. 110-343), Congress
extended the WOTC’s expiration from August 28, 2007, to August 28, 2009, for firms who hire
“Hurricane Katrina employees” to work in the disaster area.
Congressional Research Service
12
The Work Opportunity Tax Credit
111th Congress
Temporary Expansion for Unemployed Veterans and Disconnected Youth
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) temporarily
expanded the credit to cover unemployed veterans and disconnected youth who begin working for
an employer during 2009 or 2010. Unemployed veterans are persons discharged or released from
active duty in the Armed Forces within five years of their hiring date and having received
unemployment compensation for not less than four weeks during the one-year period ending on
the hiring date. Disconnected youth are 16- to 24-year-olds who are not regularly attending
school during the six-month period preceding the hiring date, not regularly employed within the
same time frame, and “not readily employable by reason of lacking a sufficient number of basic
skills.”
The eligibility of disconnected youth expired after December 31, 2010. Veterans’ eligibility for
the WOTC would be modified and extended through the VOW to Hire Heroes Act (discussed in
the next section).
Interaction with Payroll Tax Forgiveness
The Hiring Incentives to Restore Employment Act (HIRE Act; P.L. 111-147) provided payroll tax
forgiveness to employers who hired certain unemployed individuals in 2010. Employers claiming
the payroll tax forgiveness could not claim the WOTC for those wages associated with payroll tax
forgiveness. Individuals hired after December 31, 2010, were not eligible for payroll tax
forgiveness under the HIRE Act.
Extension to December 31, 2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L.
111-312) extended the WOTC through December 31, 2011.
112th Congress
Expansion and Extension of Qualified Veterans Group
P.L. 112-56, the VOW to Hire Heroes Act, expanded the qualified veterans group covered by
WOTC and changed the amount of first-year wages that can be claimed for the credit, such that
• for veterans who are members of a family receiving SNAP benefits for at
least three months in the year prior to being hired, the maximum wages for
the credit would be $6,000;
• for veterans who have been unemployed for an aggregate of at least four
weeks, but less than six months, in the year prior to being hired, the
maximum wages for the credit would be $6,000;
• for veterans eligible for disability compensation from the VA and within one
year of discharge or release from active military duty when hired, the
maximum wages for the credit would be $12,000;
Congressional Research Service
13
The Work Opportunity Tax Credit
• for veterans who have been unemployed for an aggregate of at least six
months in the year prior to being hired, the maximum wages for the credit
would be $14,000; and
• for veterans who are eligible for disability compensation from the VA and
have been unemployed for an aggregate of six months or more in the year
prior to being hired, the maximum wages for the credit would be $24,000.
P.L. 112-56 made the WOTC refundable for certain tax-exempt employers. For these employers,
the refundable credit would be the lesser of the calculated WOTC for hiring veterans who qualify
for the WOTC based on unemployment or the payroll taxes paid by the tax-exempt employer.
P.L. 112-56 extended the WOTC for qualified veterans to U.S. possessions with a tax system that
mirrors the U.S. tax system, with the Secretary of the Treasury paying to the possession the
amount lost to the possession in taxes because of the expansion of the WOTC for qualified
veterans.18
P.L. 112-56 also extended the expiration date of WOTC for veterans to December 31, 2012. This
law did not extend authorization of the credit for non-veterans.
Extension to December 31, 2013
The WOTC for non-veterans lapsed after December 31, 2011, and the WOTC for veterans lapsed
after December 31, 2012. Enacted on January 2, 2013, the American Taxpayer Relief Act of 2012
(P.L. 112-240) extended the WOTC for all eligible populations through December 31, 2013.
Extension to December 31, 2014
The WOTC lapsed after December 31, 2013, until the enactment of the Tax Increase Prevention
Act of 2014 (P.L. 113-295) in December 2014. P.L. 113-295 retroactively extended the WOTC to
cover all eligible employees who begin work prior to December 31, 2014.
Author Contact Information
Benjamin Collins
Sarah A. Donovan
Analyst in Labor Policy
Analyst in Labor Policy
bcollins@crs.loc.gov, 7-7382
sdonovan@crs.loc.gov, 7-2247
18 Possessions include American Samoa, the Commonwealth of the Northern Mariana Islands, the Commonwealth of
Puerto Rico, Guam, and the U.S. Virgin Islands.
Congressional Research Service
14