Last week the 109th session of Congress paved the way to renew the Work Opportunity and Welfare-to-Work tax credits with a sweeping bill reviving many previously shelved bills.
“Certainly, this is a great thing,” says Beth Henricks, president of the First Advantage Tax Consulting Services Division, which offers domestic and international recruiting services, applicant tracking software, skills assessments and testing, and tax credits screening.
“The business community had been told by Congress they would extend this; it’s a welcome piece of legislation,” says Henricks.
The tax credit, which had expired at the end of 2005, provides an incentive to employers to hire individuals from the following eight groups.
- families eligible to receive benefits under the Temporary Assistance for Needy Families Program
- high-risk youth
- qualified ex-felons
- vocational rehabilitation referrals
- qualified summer-youth employees (max credit of $1,200, or 40% of the first $3,000 of qualified first-year wages)
- qualified veterans
- families receiving food stamps
- persons receiving certain Supplemental Security Income benefits
If a company is interested in participating in this program, they need to use federal Form 8850 as part of all screening and application systems.
“In a more automated world, companies will [automatically] incorporate those screening questions,” Henricks says.
The form, geared for hourly hires, asks applicants basic qualifying categories.
“This way, the hiring manager will know a person is potentially eligible for a tax credit program but not necessarily how. The purpose is to give employees with a barrier to employment an incentive to hire them.”
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The programs have now been approved for renewal for two years, retroactively effective from January 1, 2006, through December 31, 2007, according to Matthew Beck, communications director for the Ways and Means Committee, Democratic Staff.
However, certain changes will be effective starting January 1, 2007.
For example, the programs now raise the age ceiling on food-stamp recipients through 39; combines Welfare-to-Work into the Work Opportunity Tax Credit program; eliminates the earnings test for ex-felons; and increases the paperwork filing deadline from 21 to 28 days.
The tax credit covers 25% of the first-year wages for workers staying on the job between 120 to 400 hours annually, and 40% for workers who stay more than 400 hours annually. (However, there is no credit for employees’ wages if working less than 120 hours the first year.) The maximum credit per employee is $2,400 (40% of the first $6,000 of qualified first-year wages).
Once signed by the president, H.R. 6111 will extend other expired tax breaks as well, including the research and development tax credit for businesses, sales tax deductions for people in states without income taxes, the tax deduction on college tuition, and tax credits for alternative energy producers and purchases of solar energy equipment by homeowners and businesses.
It is expected that the tax cuts would cost $38 billion over five years. In January, California Rep. Nancy Pelosi, the new Speaker of the House, said she’ll be pushing for a raise in the federal minimum wage.