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.
