WOTC Historical
Background
In 1978
the Federal Government created the Targeted Jobs Tax Credit
(TJTC) program to help employers obtain tax credits for hiring
individuals who fell into specific groups. Once these employees
met a retention period, the employer could claim a tax credit
of up to $2,400 per employee for their first year of employment
(i.e., 40% of wages up to $6,000). The credit applied directly
to the company's income tax liability could add up to thousands,
or even millions of dollars in tax savings per year, depending
on the company's size.
Since its
inception, TJTC has received bipartisan support in both houses
of Congress and from all presidents. It has, however, been victim
of political jockeying and has been shut down for periods of
time up to one year, in most previous shut downs the program
was renewed retroactively allowing employers to capture the
credits earned during the down period.
TJTC was
finally ended permanently December 31,1994 and reintroduced
into the new Congress as Work Opportunity Tax Credit (WOTC)
with all parties agreeing that early approval and enactment
would be forthcoming. WOTC also had some basic changes updating
the targeted groups and encouraging employers to hire and retain
"at risk" groups and thereby reduce the welfare rolls.
Because of the Congressional budget battles and several stalemates
in Washington, DC, the program was not put into law until October
1, 1996 (as part of the Minimum Wage Bill) but was not retroactive.
In October
1996, when WOTC began, the tax credit available to employers
for hiring qualified WOTC employees was 35% of wages (i.e.,
35% of wages up to $6,000) for a total credit of $2,100. Along
with that, the employee had to be employed at least 180 days
or 400 hours. Termination of an employee before they reached
the day/hour mark resulted in a denial of credit.
WOTC was
active from October 1, 1996 through June 30, 1997. When WOTC
was reintroduced in October 1997, besides making the WOTC a
two-tiered program, they also introduced the Welfare to Work
(W2W) program. This program allows employers to receive a two-year
credit for hiring long term AFDC (Aid to Families with Dependent
Children) recipients. The Credit is 35% of the employee's first
year's wages up to $10,000 and 50% of the employee's second
year's wages up to $10,000 for a total two-year credit of $8,500.
Although qualified employees sometimes fall into both WOTC and
W2W in the same year, employers are only eligible to receive
credit for only one of the two programs.
The program
again went down from June 1998 until October 1, 1998. As of
December 31, 2001, WOTC is under Congressional review.
Currently,
the program has been made into a two-tiered system allowing
the employer to receive 25% of the qualified employee's wages
once they work 120 hours. On reaching 400 hours the employer
is eligible to receive 40% of the employee's wages, again up
to $6,000 for a total credit of $2,400.
To learn
which credit would be most profitable for your organization,
contact MCM today for your complimentary
evaluation.
