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_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

The Work Opportunity Tax Credit (WOTC)

Christine Scott, Specialist in Social Policy

February 4, 2013

http://www.fas.org/sgp/crs/misc/RL30089.pdf

[full-text, 20 pages]

 

Summary

The Work Opportunity Tax Credit (WOTC) is meant to induce employers to hire members of

families receiving benefits under the Temporary Assistance to Needy Families (TANF) program

and other groups thought to experience employment problems regardless of general economic

conditions (e.g., food stamp recipients and ex-felons). In 1997, Congress passed the Welfare-to-

Work (WtW) tax credit to focus specifically on more disadvantaged TANF recipients. The 109th

Congress folded the WtW credit into a revised WOTC as part of the Tax Relief and Health Care

Act of 2006.

 

Provisions to increase the minimum wage and to provide tax relief to small businesses were

included in emergency supplemental appropriations during the 110th Congress. The U.S. Troop

Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Act of 2007 (P.L. 110-28)

extended the WOTC for three-and-one-half years through August 31, 2011. It also expanded the

definition of WOTC-eligible veterans to persons entitled to compensation for service-connected

disabilities (1) with a hiring date not more than one year after having been discharged or released

from active duty in the Armed Forces or (2) having been unemployed for at least six months

during the one-year period ending on the hiring date, and doubled (to $12,000) the maximum

wage against which the subsidy rate could be applied for this component of the veterans group. In

addition, the law expanded the age range of high-risk youth to cover 18- to 39-year-olds and

renames the WOTC-eligible group “designated community residents.” The act also clarified the

definition of vocational rehabilitation referrals, added “rural renewal county” to the places of

residence for designated community residents, and allowed the WOTC and tip credit against the

Alternative Minimum Tax.

 

In the 111th Congress, the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5)

expanded the credit’s targeted groups to cover unemployed veterans and disconnected youth who

began working for an employer during 2009 or 2010. The Hiring Incentives to Restore

Employment Act (HIRE; 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. The Tax Relief,

Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended

the WOTC through December 31, 2011.

 

In the 112th Congress, P.L. 112-56 expanded the WOTC targeted group for veterans and provided

a higher level of first-year wages for calculating WOTC for hiring certain veterans through

December 31, 2012. Also in the 112th Congress, the American Taxpayer Relief Act of 2012 (P.L.

112-240) extended the WOTC for all eligible groups through December 31, 2013.

 

 

Contents

What Kind of Wage Subsidy Is the WOTC? ................................................................................... 5

A Description of the WOTC ............................................................................................................ 6

Program Activity and Costs ........................................................................................................... 10

Evaluations of the WOTC .............................................................................................................. 11

Legislative Activity ........................................................................................................................ 14

From the 104th Congress Through the 112th Congress ............................................................. 14

104th Congress: Creation of the WOTC ............................................................................ 14

105th Congress: Several Revisions .................................................................................... 14

106th Congress: Expansion of WOTC-Eligible Groups .................................................... 15

107th Congress: 2002-2003 WOTC Expansion to Cover New York Liberty Zone

Employees and Authorization of the WtW Credit .......................................................... 15

108th Congress: A Lengthy Lapse ...................................................................................... 16

109th Congress: Hurricane Disaster Relief, Modifying the WOTC, and

Incorporating the WtW Credit into the WOTC After Another Long Lapse ................... 16

110th Congress: Focus on Eligible Groups and Credit Extension ..................................... 18

111th Congress: Temporary Expansion and Extension of the Credit ................................. 19

112th Congress: Expansion of Veterans Targeted Group and Credit Extension ................. 19

 

Tables

Table 1. WOTC Certifications Issued by Target Group, FY2008-FY2012 ................................... 11

 

Contacts

Author Contact Information........................................................................................................... 20

Acknowledgments ......................................................................................................................... 21

 

 

 

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