Employment-related credits.

• Author: Reilly, Kevin F.

Many attractive business credits are available to employers, such as the welfare-to-work credit, work opportunity credit, FICA tip credit, empowerment zone credit and employer-provided childcare credit. The effectiveness of the various employment credits has been questioned since their inception. Several of these credits are scheduled to expire on Dec. 31, 2003, but may be extended. Tax advisers should monitor their availability in future years; Congress uses tax credits to motivate employers to provide jobs and benefits to disadvantaged workers.

Welfare-to-Work Credit

The Sec. 51A welfare-to-work credit is available to employers of eligible employees who entered employment at the organization between 1998 and 2003. The credit seeks to (1) ease the transition from welfare to work by increasing targeted individuals' access to employment; and (2) give employers an added incentive to hire them. An "eligible employee" is any individual certified by a state employment security agency (as defined in Sec. 51 (d)(2)(B)) as being a member of a family that has received assistance under the Aid to Families with Dependent Children (AFDC) program. According to Sec. 51A(d)(1), each individual must be employed at least 180 days or have completed 400 hours of services for the employer.

The credit is not available, under Sec. 51(i), for any individual (1) related to the employer, (2) who has previously worked for the employer or (3) who works more than 50% of the time outside the employer's trade or business.The employer can take a credit based on up to $10,000 of qualified wages per year per eligible employee, for two years. For the first year, an employee's qualified wages are multiplied by 35%, for a $3,500 maximum credit; for the second year, wages are multiplied by 50%, for a $5,000 maximum credit. Qualified wages can include cash, health or accident plan payouts or contributions or educational or dependent care assistance.

Work Opportunity Credit

The Sec. 51 work opportunity credit is limited to eligible employees who begin work for the employer after Sept. 30, 1996 and before 2004. Under Sec. 51 (d)(1), eligible employees include individuals who are members of one of the following target groups:

1. Qualified members of families receiving assistance under the AFDC program (or a successor program);

2. Qualified veterans;

3. Qualified ex-felons;

4. High-risk youth;

5. Vocational rehabilitation referrals;

6. Qualified summer youth employees;

7. Qualified...