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Welfare-to-Work Tax Credit (WtWTC)

This topic describes the Welfare-to-Work Tax Credit (WtWTC) in a question and answer format. It contains a number of different sections, which you may either read in sequence or jump directly to specific sections in the following list:

· What Is The Welfare-to-Work Tax Credit (WtWTC)?

· What New Hires Can Qualify Employers For The WtWTC?

· How Can Employers Participate In The WtWTC?

· Additional Information

NOTE: On October 4, 2004, the President signed into law the Working Families Tax-Relief Act of 2004 (P.L. 108-311). This legislation extends both the Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work Tax Credit (WtWTC) programs, 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 is the Welfare-to-Work Tax Credit?

The Welfare-to-Work Tax Credit (WtWTC) 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 2006. 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.

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.

What New Hires Can Qualify Employers For The WtWTC?

The Welfare-to-Work Tax Credit applies to new hires, that begin work after December 31, 1997, and before January 1, 2006, 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), formerly known as 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 WtWTC?

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, and instructions, call the IRS at 1-800-829-1040 or download the form and separate instructions in PDF format (requires Adobe Acrobat Reader) from the IRS website at:
http://www.irs.gov/pub/irs-pdf/f8850.pdf
http://www.irs.gov/pub/irs-pdf/i8850.pdf

Materials available from DOL in PDF format (requires Adobe Acrobat Reader) and the corresponding URL include:

· ETA Form 9061, the WOTC Individual Characteristics Form:
http://www.uses.doleta.gov/pdf/Appendix_II/Appendix_II__1_ETA_9061.pdf

· Employer Tax Credit Brochure:
http://www.uses.doleta.gov/pdf/brochure.pdf

· Directory of State WOTC Coordinators:
http://www.uses.doleta.gov/pdf/SWADirWOTCCoordsRev6-04.pdf

· Directories of National and Regional WOTC Coordinators:
http://www.uses.doleta.gov/pdf/RegCoordsDirRev6-04.pdf

Additional Information

For more information about the WOTC and the WtW tax credits:

· Call or visit your local public State Workforce Agency WOTC Coordinator (use the above mentioned State Directory)

· Call the U.S. Department of Labor Regional WOTC Coordinator nearest you (use the above mentioned Regional Directory)

· Call Karin Loverud at the Internal Revenue Service (IRS) at 202-622-6080

For information about EZ/EC/RC locations, call 1-800-998-9999 or visit their HUD website at:
http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm

ETA Handbook No. 408, Third Edition, November 2002 for the Work Opportunity Tax Credit Program and the Welfare-to-Work Tax Credit, from the U.S. Employment Service/ALMIS, U.S. Department of Labor, Employment and Training Administration is available in PDF format (requires Adobe Acrobat Reader) online at:
http://www.uses.doleta.gov/pdf/ETA_HB_408_Text_11_2002.pdf

See also:

Tax Credit Programs for Employers - Overview

Work Opportunity Tax Credit (WOTC)

Source

Information for this topic was drawn from the DOL website at:
http://www.uses.doleta.gov/wtw.asp

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