Welfare to Work Tax Credit

Welfare-to-Work Tax Credit (WTW)

The Welfare-to-Work tax credit was created by the Taxpayer Relief Act of 1997 (Public Law 105-34) and amended by the Tax and Trade Relief Extension Act of 1998 (Public Law 105-277) & The Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law 106-170). The effective date for the W2W tax credit was 01-01-98. W2W is a two-year tax credit for employers who hire employees certified as long-term family assistance recipients. The tax credit is effective for wages paid to such employees who begin work after December 31, 1997.

A "Long-term Family Assistance Recipient" refers to any person who is a member of a family that:

  • has received family assistance (i.e., AFDC/TANF or a successor program) for at least 18 consecutive months ending on the hiring date, or
  • has received family assistance for a total of at least 18 months (whether or not consecutive) beginning after August 05, 1997, and has a hiring date that is not more than two years after the end of the earliest 18-month period; or
  • whose AFDC/TANF eligibility expired under a Federal or State law after August 05, 1997, for applicants hired within two years after their eligibility expiration.

Note: TANF means Temporary Assistance to Needy Families.

Qualified First-Year Wages are wages that an employee earns during the first-year period, which begins the day the employee starts work. The maximum amount of wages to which the 35 percent tax credit may be applied during the first year shall not exceed $10,000 for a maximum first year credit of $3,500.

Qualified Second-Year Wages are wages that an employee earns during the second-year period. During the second year, the maximum amount of wages to which the 50 percent may be applied shall not exceed $10,000 for a maximum credit of $5,000. Under the WTW tax credit, employers can claim up to $8,500 of combined tax savings per new hire