Search Penny Hill Press

Friday, February 22, 2013

The Work Opportunity Tax Credit (WOTC)

Christine Scott
Specialist in Social Policy

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 110
th 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 111
th 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 112
th 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.

Date of Report: February 4, 2013
Number of Pages: 20
Order Number: RL30089
Price: $29.95

To Order:

RL30089.pdf  to use the SECURE SHOPPING CART


Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.