Welfare to Work Tax Credit Program

The Welfare to Work Tax Credit Program is a federal tax credit program offered to employers as an incentive to hire people in seven targeted groups who face significant barriers to employment. The WOTC program was created by the Small Business Job Protection Act (Public Law 104-188) and amended by H.R. 2014. Changes made by H.R. 2014 are effective October 1, 1997, and the WOTC program is extended through year 2000.

Who is Helped by the Welfare to Work Tax Credit Program?

The Welfare to Work Tax Credit Program helps both the employer and targeted job seekers. The employer saves because the tax credit helps defray payroll expenses. A job seeker who qualifies for one of the targeted groups gains an advantage in the job market.

How Much is the Tax Credit?

There is a two-tiered tax credit based on the first $10,000 of earnings:

      a. A 35% credit for workers' first $10,000 (first year)
      b. A 50% credit for workers' first $10,000 (second year)

What are Qualified Wages?

Wages considered as qualified for a tax credit are the first-year wages paid or incurred to target group individuals who begin work for the employer after September 30, 1997. Wages cannot be taken into account for any individual unless that individual is employed for at least 120 hours or 90 days of work.

Who are the Targeted Groups?

      a. TANF (AFDC) Recipient - a member of a family that has received assistance from the
      Temporary Assistance Program (TANF)/(AFDC) for at least 18 months

      b. TANF (AFDC) Recepient - a member of a family that recieves AFDC or TANF for any 18
      months beginning after August 5, 1997.

      c. TANF or AFDC or Successor Program - after August 15, 1997
      a member of a family that stopped being eligible beacsue federal or state law limited the maximum
      time payments could be made.

      d. ANY INDIVIDUAL who began work who currently is a participating program recipient of
      a conditional certification from a SESA or state or local agency for the welfare to work credit.