Overview

The welfare-to-work credit provides businesses with an incentive to hire long-term family assistance recipients.  The business does not have to be in a federal empowerment zone, state enterprise zone or renewal community to qualify for this credit.  A credit can be claimed if a business pays or incurs “qualified wages” during the first 2 years of employment to a “long-term family assistance recipient” who begins work for the business after 1997.

The Welfare-to-Work Credit (Form 8861) is used to claim the welfare-to-work credit for wages paid to or incurred for long-term family assistance recipients during the tax year. The credit is 35% of qualified first-year wages and 50% of qualified second-year wages paid or incurred during the tax year.  The Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits (Form 8850) must be signed by the employer and by the qualified individual and submitted to the State Employment Security Agency (SESA) by the 28th calendar day after the individual begins work.  If the SESA denies the request, it will provide a written explanation of the reason for denial.

Long-term family assistance recipient: 

A long-term family assistance recipient is an individual who has been certified by SESA as a member of a family that:

1. has received assistance payments from Temporary Assistance for Needy Families (TANF) for at least 18 consecutive months ending on the hire date,
2. receives assistance payments from TANF for any 18 months (whether or not consecutive) beginning after August 5, 1997, and is hired not more than 2 years after the end of the earliest 18-month period, or
3. stops being eligible after August 5, 1997 for assistance payments because federal or state law limits the maximum period that assistance is payable, and is hired not more than 2 years after that eligibility for assistance ends.
   
   

Qualified Wages

Qualified wages are generally wages subject to the Federal Unemployment Tax Act (FUTA).  Qualified wages also include the following amounts the business paid or incurred for the employee that are excludable from the employee’s gross income:

• Premiums and other amounts that the business paid or incurred under an accident and health plan excluded under section 105 or 106
• Educational assistance excluded under section 127, if paid or incurred to a person not related to the employer
• Dependent care benefits excluded under section 129

Nonqualified Wages

The amount of qualified wages for any employee is zero if: 

• The employee did not work for the business for at least 400 hours or 180 days
• The employee worked for the same business previously
• The employee is a dependent or a related party of the business owner
• 50% or less of the wages the employee received from the business were for working for that trade or business

Nonqualified wages include:

• Wages paid to any employee during any period for which the business received payment for the employee from a federally funded on-the-job training program
• Wages for services of replacement workers during a strike or lockout at a plant or facility.

Amount of the Credit:

Rate and Maximum Credit Each Tax Year for Each Long-Term Family Assistance Recipient
-	Rate	Maximum Qualified Wages	Maximum Credit
Qualified 1st-Year Wages	35%	$10,000	$3,500
Qualified 2nd-Year Wages	50%	$10,000	$5,000

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