DIRECTIVE	:	EMPLOYMENT SERVICE PROGRAM LETTER NO. 15-98
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	John R. Beverly, III Director U.S. Employment Service
SUBJECT	:	Coordination of Work Opportunity Tax Credit (WOTC) and Welfare-to-Work (WtW) Tax Credit.

1. Purpose. To provide clarification regarding the availability and maximum time periods of these two tax credits and how employers can claim them.

2. References. The Taxpayer Relief Act of 1997 (P.L. 105-34, the Act); Internal Revenue Bulletin No. 1997-41, dated October 14, 1997; ESPL No. 7-98, dated April 27, 1998; and ETA Handbook No. 408, Draft Second Edition, June 1998.

3. Background. Under the enacting legislation, the Small Business Job Protection Act of 1996, (P.L. 104-188), employers could only claim the WOTC for any or several of the original seven target groups, if they met all the eligibility and filing requirements prescribed by this law.

4. Information. Under the reauthorizing legislation, employers also must meet all the eligibility and filing requirements prescribed by the Act. However, the WtW is coordinated with the WOTC so that in any one taxable year an employer cannot claim both credits with respect to the same individual. Note: Currently, the perception among some employers is that they can claim the WOTC for one year and the WtW tax credit for two additional years for a maximum period of three years. It is extremely important that employers understand that under the current legislative authority they have a maximum period of two years --from the date the individuals begin to work for them-- to participate and claim either tax credit. The IRS provides specific examples to illustrate how employers can claim these two tax credits as follows:

   1. Let's assume that an individual begins work on March 1, 1998, and works at least 400 hours for an employer whose taxable year is the calendar year. The employer pays "first-year wages" from March 1998 through February 1999 and pays "second-year wages" from March 1999 through February 2000. If the individual is certified as both a member of one of the WOTC target groups and as a LongTerm Family Assistance Recipient and the requirements for both credits are otherwise satisfied, the employer will have the following choices:

      For 1998, the employer may claim either the WOTC (i.e., 40% of wages up to $6,000) or the WtW (i.e., 35% of wages --as defined in section 51 A(b)(5) of the Code-- up to $10,000). For 1999, the employer may choose again which credit to claim. The WOTC would be based solely on the amount of first-year wages (i.e., up to $6,000) paid in 1999, during the balance of the first employment year (i.e., January and February 1999).

   2. The WtW tax credit would have two components: 35 % of the amount of "first-year wages" (up to the $10,000 limit) paid in January and February 1999, and 50% of the amount of the "second year wages" (up to a separate $10,000 limit) paid in March through December 1999. For the year 2000, the employer could claim on the WtW, based on the amount of "second-year wages" (i.e., up to the second $10,000 limit) paid in January and February 2000.

5. Action Required. State Employment Security Agency (SESA) Administrators are asked to make this information available wherever it may be helpful for better understanding of the coordination of these two tax credits including staff, participating agencies, employers and their representatives, and applicants.

6. Inquiries. Direct all questions to the appropriate Regional WOTC/WtW Coordinator.