New employer tax credit takes effect Jan. 1

Nation's Business, Jan, 1998

Beginning Jan. 1, employers who hire certain welfare recipients are eligible for a new tax credit. The Welfare-to-Work Tax Credit allows employers to deduct from taxes owed 35 percent of the first year's first $10,000 in wages and 50 percent of the second year's first $10,000 in wages paid to workers who had been long-term welfare recipients.

Long-term welfare recipients are defined as those who received Aid to Families with Dependent Children, (AFDC) for at least 18 consecutive months immediately before employment, those who received AFDC for 18 months after Aug. 5, 1997, and those who became ineligible for assistance after Aug. 5, 1997, because of federal or state time limits on receiving welfare benefits.

The credit, which expires April 30, 1999, was included in the Taxpayer Relief Act of 1997 -- the balanced-budget agreement signed into law Aug. 5.

A related tax provision, the Work Opportunity Tax Credit -- formerly known as the Targeted Jobs Tax Credit -- was extended to June 30, 1998, and modified in the tax-relief statute. The provision was scheduled to expire Sept. 30, 1997.

The work-opportunity credit allows employers who hire targeted individuals, such as welfare recipients, veterans, and certain disadvantaged youths, to deduct from taxes owed 40 percent of the first $6,000 in wages paid to those targeted employees who work more than 400 hours a year. For employees who work less than 400 hours but more than 120 hours, a credit of 25 percent of the first $6,000 is available. Employers cannot claim both the Welfare-to-Work and Work Opportunity tax credits for the same worker.