WOTC Roots in TJTC

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.

President Bush signed a stimulus bill on March 9, 2002 which renewed the WOTC/W2W program. The new law extended both the Work Opportunity Tax Credit (WOTC) and Welfare to Work Tax Credit through December 31, 2003, a two year extension for each. As both program extensions were approved as retroactive, clients were able to earn credits for qualified applicants hired since January 1, 2002. The reauthorization applies to individuals who began work for their employer from January 1, 2002, and before January 1, 2004. Subsequently, the WOTC/W2W program was extended to Dec. 31, 2005

On May 25, 2007, the President signed into law the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28), which extends the WOTC Program through August 31, 2011. This Act and the Tax Relief and Health Care Act of 2006 (P.L. 109-432), signed into law on December 20, 2006, amend certain target group definitions, introduce new provisions that streamline the WOTC program and make it easier for the business sector to participate. For example, P. L. 109-432 eliminated the Welfare-to-Work Tax Credit (WtWTC) by merging it into the WOTC and making the Long-term TANF Recipient another WOTC target group.

Most recently, on February 17, 2009 President Obama approved the American Recovery and Reinvestment Tax Act of 2009 (ARRTA) of which Section 1221 amended § 51 to add two new targeted groups for purposes of the WOTC. The new § 51(d)(14) provides that unemployed veterans and disconnected youth who begin work for an employer during 2009 or 2010 shall be treated as members of a targeted group for purposes of the WOTC.

HR 4853 signed by President Obama on December 17, 2010 extends the Work Opportunity Tax Credit Program until the end of 2011. Previously in effect until August 31st, 2011 the bill gives the WOTC program an additional 4 months of legislative approval for this generous Employer Tax Credit Program.

Learn more about the WOTC, get continuing education credits, and get a complete legislative update for tax credits you and your firm may be entitled to by joining Mckenzie Chase Management for a CPE qualified course. Click here to see the current schedule of live webinars.

Discover which credits would be most profitable for your organization; contact MCM today for your complimentary evaluation.

To learn which credit would be most profitable for your organization, contact MCM today for your complimentary evaluation.