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The Work Opportunity Tax Credit (WOTC) program, a historical review

By Teresa Danielson

In 1978, the Federal Government created the Targeted Jobs Tax Credit program also known as TJTC.  The tax credit was an incentive to employers for hiring individuals from specific target groups.  TJTC was designed to support individuals who had historically had challenges entering the workforce.

In 1994, Congress permanently ended TJTC.  In 1996, Congress passed “Small Business Protection Act of 1996” creating the Work Opportunity Tax Credit Program, (WOTC) as a successor program to TJTC.  Employers received a tax credit for hiring individuals from 7 designated groups hired between October 1, 1996 through September 31, 1997. 

WOTC is part of a package of more than 50 tax provisions commonly known as “tax extenders” or “expiring provisions”.  Because these provisions are all temporarily enacted, they are continuously extended by Congress before or after their respective expiration.  For the most part, all of these provisions have been enacted as a group.  In order for these provisions to be extended, there must be a suitable legislative bill they can be a part of which is not always feasible prior to expiration.  Since Congress has a long history of allowing these provisions to expire and then renew, an impending sunset is not viewed as significant. 

The WOTC program has been renewed 11 times since 1996.  Many of these renewals made modifications to the program.  Below is a summary of the history of the WOTC extensions:

1997

  • Extended WOTC for 9 months, October 1, 1997 to June 30, 1998
  • Shortened the minimum retention period to 120 days
  • Created the “Welfare to Work” (WTW) tax credit under WOTC

1998

  • Extended WOTC for 12 months, July 1, 1998 to June 30, 1999

1999

  • Extended WOTC for 30 months, July 1, 1999 to December 31, 2001

2001

  • Expanded the definition of high risk to include renewal communities effective January 1, 2002

2002

  • Extended WOTC for 24 months, January 1, 2002 to December 31, 2003
  • Created the New York Liberty zone as part of WOTC

2004

  • Extended WOTC for 24 months, January 1, 2004 to December 31, 2005
  • Modified the definition of the Vocational Rehabilitation definition to include Ticket-to-Work and to include disabled workers referred by an “employment network”

2006     

  • Extended WOTC for 24 months, January 1, 2006 to December 31, 2007
  • Created the Hurricane Katrina” employee as part of the WOTC target group
    • No certification required
  • Consolidated WTW and WOTC into one program
  • Eliminated the economically disadvantaged requirement for ex-felons
  • Expanded the food stamp recipients age from 18-24 to 18-39
  • Extended the 8850 filing requirement from 21 days to 28 days

               2007

  • Extended WOTC for 3.5 years, January 1, 2008 to August 31, 2011
  • Expanded the age for the Disconnected Community Resident (DCR) from 18-24 to 18-39
  • Expanded the DCR target group to include “Rural Renewal County” (RRC)

               2008

  • Extended the Katrina tax credit to expire August 28, 2009

               2009

  • Created Disconnected Youth target group effective January 1, 2009 to December 31, 2010
  • Expanded the target groups to include Veterans released within 5 years of their hire date

               2011

  • Extended WOTC for 4 months, September 1, 2011 to December 31, 2011
  • Expanded Veteran eligibility to include short term and long term unemployed, disabled and released from duty in past year and disabled and unemployed. Wages expanded to $12,00 to $24,000
  • Extended the expiration for the Veteran target group only to December 31, 2012

               2013

  • Extended WOTC for 24 months, January 1, 2012 to December 31, 2013

               2014

  • Extended WOTC for 12 months, January 1, 2014 to December 31, 2014

               2015

  • Extended WOTC for 5 years, January 1, 2015 to December 31, 2019
  • Created the Long-Term Unemployed target group

Legislators continue to come up with ideas to use the WOTC as a vehicle to support the hiring of individuals with barriers to employment.  WOTC is a flexible policy tool and  a cost-effective hiring program.  The benefits far outweigh the costs for both state and federal governments, reduces poverty and expands the workforce while increasing private sector employment. 

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