Lack of certification not a bar to targeted jobs credit use.

• Author: Cronin, David M.

Under Sec. 51, employers are allowed an income tax credit for a portion of wages paid to certain new employees who qualify as members of disadvantaged groups. This credit, known as the work opportunity credit, applies to employees who are members of certain targeted groups. These groups include (1) qualified IV-A (Aid to Families with Dependent Children) recipients, (2) qualified veterans, (3) qualified ex-felons, (4) high-risk youths, (5) vocational rehabilitation referrals, (6) qualified summer youth employees, (7) qualified food stamp recipients and (8) qualified SSI recipients.

In general, the work opportunity credit applies to eligible individuals who began work after Sept. 30, 1996 and before July 1, 1999. The credit is 35% (40% for individuals who began work after Sept. 30, 1997) of the first $6,000 of wages ($3,000 for qualified summer youth employees) paid to each targeted group member during the first year of employment. Individuals who began work after Sept. 30, 1997 must complete a minimum of 120 hours of service. The employer receives a credit of only 25% of wages if the employee performs less than 400 hours of service; for 400 hours or more of service, the credit is 40% of the employee's wages.

The predecessor of the work opportunity credit was the targeted jobs credit. Created by Congress in 1978, the targeted jobs credit was designed to encourage businesses to hire members of economically disadvantaged groups. The targeted jobs credit provided a 40% tax credit of the first $6,000 of wages paid to members of certain targeted groups that suffered higher than average unemployment rates. To claim the credit, these "targeted" employees were required to be certified by a local agency as being a member of one of the targeted groups. To further encourage employers to hire members of the targeted groups, Congress directed the Department of Labor to designate local agencies to handle the certification process. Employers were required to request or receive, from these local agencies, certification that each of these individuals was a member of a targeted group on or before the first day of employment. By creating these agencies to handle the certification process, Congress believed that employers (alleviated of the burden of proof that an individual was a member of a targeted group) would be more likely to participate in the program.

These local agencies, however, failed to timely process the certification requests due to the...