Work Opportunity Tax Credit Wotc , Thesis

Excerpt from Thesis :

Rather than being idle and receiving public benefit, individuals of working age typically prefer completing useful work. Mark P. Altieri, an associate professor of accounting at Kent State University, Kent, Ohio, and Jason A. Rothman, (2006), an associate at Wickens, Herzer, Panza, Cook and Batista, note a number of enhancements to WOTC in the article, "Surviving Katrina: Tax breaks for victims of the costliest catastrophe in American history."

According to Altieri and Rothman (2006), in regard to the WOTC - general law, under IRC section 51, the WOTC provides motivation for employers to hire economically disadvantaged individuals. These disadvantaged individuals include qualified ex-felons, food-stamp recipients, veterans, summer youth employees, as well as individuals who receive certain welfare benefits (Altieri & Rothman, ¶ 23). Altieri and Rothman explain that in the past, the WOTC -- Katrina was expanded to embrace individuals whose principal residence on August 28, 2005, was located in the Core Disaster Area. Employers in the Core Disaster Area could claim the WOTC for two years, however, only the hiring of new hire as stipulated; eliminating coverage for those individuals hired by August 28, 2005.

The special Katrina provisions, Altieri and Rothman (2006) explain, involved the new law creating a tax credit equal to 40% of the first $6,000 in wages that an employer paid to eligible workers located in the Core Disaster Area. This benefit lasted for the duration of the time in which business was rendered inoperable due to the damage resulting from Hurricane Katrina.

The U.S. Federal News Service report, "Changes expand federal tax credit program for employers" (2007), notes a number of changes the Michigan Department of Labor and Economic Growth related. Keith W. Cooley, director of the Department of Labor & Economic Growth, stressed that the expansion of the WOTC lightened numerous stipulations the program required as it expanded the categories of workers qualifying for assistance in securing employment. In turn, this provides a greater number of potential workers the employer may select from to qualify for the tax credit. The range of tax credits WOTC offers range from $2,400 to $9,000 for each employee an employer hires; providing these individuals are in the nine categories of workers the program covers. Cooley stresses: "WOTC is a win-win for both the employer and the worker. It helps workers to find jobs, while helping employers to reduce their federal tax burden" (Cooley, as cited in Changes expand…, 2007, ¶ 4). Changes applied to WOTC with its reauthorization during 2007 will cover the individuals who qualify as new hires through August 31, 2011. The following notes seven significant changes made during 2007 to enhance the WOTC:

1. Expanding the veteran target group to assist those with service-rated disabilities of 10% or greater

2. Expanding the age range for food stamp recipients to include 18 to 39-year-olds

3. Dropping the high-risk youth target group and adding designated community residents who are 18 to 39-year-olds and living in Detroit's Empowerment Zone/Renewal Community (RC), Flint's RC or the Rural Renewal Counties of Gogebic, Marquette and Ontonagon

4. Ending the income verification requirement for the ex-felon target group

5. Ending the Welfare to Work Tax Credit program and adding its target group - recipients of long-term Temporary Assistance to Needy Families (TANF) - to WOTC

6. Increasing the time in which the employer can apply for the credit from 21 days to 28 days after the new hire's start date

7. To qualify for the WOTC, the employer must employ the worker for at least 120 hrs during the first year of employment in order to claim a 25% credit, or at least 400 hours to claim a 40% credit for the first year. (Changes expand…, 2007, ¶ ¶ 5-11)

Battersby (2007 [b]) reports that changes relating to WOTC during its 2007 will not affect credits, as they will continue to target the nine specific, targeted groups of individuals considered economically challenged. "The combined credit in 2007 will simplify the necessary computations and," Battersby ([b]) explains, "therefore, enhance its use, especially among smaller contractors and businesses. The amount of the tax credit will, however, remain the same" (Battersby [b], ¶ 6). In addition, Battersby stated, for the majority of the targeted individuals, the credit equals up to 40% of their qualified first-year wages (25% when employment equals more than 120 hours yet totals less than 400 hours. The revision also stipulates that qualified first-year wages may not total more than $6,000 (Battersby [b]).

Jan Rosen (2007) compares smart business owners to fisherman in the article, "Benefits and traps in new tax rules." The smart business owner, similar to fishermen who tune in to the weather report, stay attuned to "Washington's ever-changing tax and regulatory climate for developments that could affect their profits" (Rosen, ¶ 1). Rosen relates two significant events that occurred during 2007:: On May 25, President Bush signed the Small Business and Work Opportunity Tax Act, and on Aug. 3, the Internal Revenue Service proposed regulations on the employee benefit plans known as cafeteria plans" ( ¶ 2).

According to Rosen (2007), although the name of the Small Business and Work Opportunity Tax Act sounds promising, it is actually technical and targeted narrowly. Barbara Weltman, a tax lawyer and in Millwood, N.Y., contends: "The most significant provision is the increased expensing limit for 2007 through 2010" (Weltman, as cited in Rosen, ¶ 7). Expensing, Rosen explains, basically means that instead of depreciating business equipment over several years, a business may take an immediate tax deduction when the owner purchases qualifying equipment. The SBWOTA extends the Work Opportunity Tax Credit through August 31, 2011, and expands. As noted by other sources in this paper, it permits businesses to claim tax credits for hiring certain workers, up to $4,800 each. The employees include particular veterans and workers, from 18 to 25 years old, from areas with a minimal number of employment opportunity sources (Rosen).


Eligible Groups

During 2009, the article, "Texas workforce commission highlights tax credits for employers," (2009) reported that the Texas Workforce Commission (TWC) alerted Texas employers of the approximately $154 million in tax credits, available for companies that hire workers from specific demographics (Texas workforce…, 2009, ¶ 1). Tom Pauken, TWC Chairman, stressed: "It's an especially good time for employers to take advantage of the Work Opportunity Tax Credit. This incentive allows them to benefit from federal tax savings, improve their bottom lines and boost the current economic climate." (Texas workforce…, ¶ 2). The WOTC is designed to persuade employers to hire new employees from the nine groups of qualified individuals seeking jobs that the WOTC targets, individuals who mayface barriers to employment. The WOTC constitutes a credit of up to $2,400 for each qualifying employee, which includes the following individuals:

Temporary Assistance for Needy Families (TANF) recipients

Veterans, which includes a specific subgroup for disabled veterans


Designated community residents

Vocational rehabilitation referrals

Summer youth

Food stamp recipients

Supplemental Security Income (SSI) recipients

Long-Term Family Assistance recipients (Texas workforce…, 2009, ¶ 3).

Even though the U.S. ranks as one of the most affluent nations in the world, a considerable number of individuals in the country live in poverty. Nan S. Ellis (2005) Professor of Law, Loyola College in Maryland, reports that during 2003, 35.9 million people in the U.S. reportedly lived below the poverty level, with 16.7% of these individuals being children. In "Employer-Based training programs for TANF recipients: A public policy examination," Ellis notes that policy makers today, as in the past, continue to struggle with how to best address "the persistent issues of poverty, joblessness, and homelessness" (¶ 1).

Heather Leggiero, (2007) CPA, Albany, New York also relates details regarding the SBWOTA in the article, "The WOTC expanded. The Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28 (SBWOTA) expanded the definition of the groups targeted by the WOTC, which had been in existence for a number of years. The SBWOTA also created tax incentives, expected to affect more clients than originally perceived as it "expanded the definition of 'qualified veteran' to include certain disabled veterans and broadened the definition of a targeted group of high-risk youths, now referred to as designated community residents (DCRs)" (Leggiero, ¶ 1). SBWOTA also allowed individuals and corporate taxpayers to claim the WOTC against the alternative minimum tax for tax years which began after December 31, 2006. These particular changes were deemed effective for employees hired after May 25, 2007, the enactment date for SBWOTA. The WOTC will reportedly end after August 31, 2011. (Leggiero).

Under Sec. 51(d)(3)(A)(ii), Leggiero, (2007) explains, a qualified veteran includes an individual entitled to receive compensation for his/her service-connected disability, permitting:

1. he/she has a hiring date no longer than one year after he/she was discharged or released from active duty in the U.S. armed forces or

2. he/she had "aggregate periods of unemployment during the one-year period ending on the hiring date that equal or exceed six months" (Leggiero, 2007, ¶ 3).

Section 51(d)(5), states that a…

Sources Used in Document:


Altieri, M.P., & Rothman, J.A. (2006). Surviving Katrina: Tax breaks for victims of the costliest catastrophe in american history. Journal of Accountancy, 201(2), 58+. Retrieved June 1, 2009, from Questia database:

Anonymous. (2008). Special tax credit aids Paulding Co. development. Toledo Business Journal.

Telex Communications, Inc. Retrieved June 01, 2009 from HighBeam Research: Battersby, M.E. (2009). The Memorial Day tax surprise. Metal Center News. Sackett Business

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