Business Tax Incentives
Incentives to Employ Workers with Disabilities Receive Limited Use and Have an Uncertain Impact Gao ID: GAO-03-39 December 11, 2002More than 17 million working-age individuals have a self-reported disability that limits work. Their unemployment rate is also twice as high as for those without a work disability, according to recent Census data. In the Ticket to Work and Work Incentives Improvement Act of 1999, the Congress mandated that GAO study and report on existing tax incentives to encourage businesses to employ and accommodate workers with disabilities. This report provides information on (1) the current usage of the tax incentives, (2) the incentives' ability to encourage the hiring and retention of workers with disabilities, and (3) options to enhance awareness and usage of the incentives.
A very small proportion of corporate and individual taxpayers with a business affiliation use the two tax credits that are available to encourage the hiring, retention, and accommodation of workers with disabilities, according to IRS data. Taxpayers in the retail and service industries accounted for the largest share of the work opportunity credits reported in 1999, while providers of health care and social assistance services accounted for the largest share of the disabled access credits. Information on the effectiveness of the incentives is limited and inconclusive. Only the work opportunity credit has been studied and these studies, along with those of a prior hiring credit, showed that some employers revised their recruitment, hiring, and training practices to increase the number of disadvantaged workers hired and retained, but that credits have also have been claimed by employers for workers they would have hired anyway. However, these studies have not focused on workers with disabilities and data limitations preclude conclusively determining their effectiveness for these workers. To increase the awareness and usage of the tax incentives, business representatives and experts on disability issues and tax incentives suggested (1) improving government outreach and education efforts; (2) increasing the maximum dollar amount of the incentives; and (3) expanding the types of workers, businesses, and accommodations that are eligible for the incentives. While these options may increase incentive usage, it is uncertain whether the potential loss in tax revenues would be offset by improvements in the employment of workers with disabilities. Commenting agencies generally concurred with GAO's findings.
GAO-03-39, Business Tax Incentives: Incentives to Employ Workers with Disabilities Receive Limited Use and Have an Uncertain Impact
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Report to Congressional Committees:
United States General Accounting Office:
GAO:
December 2002:
Business Tax Incentives:
Incentives to Employ Workers with Disabilities Receive Limited Use and
Have an Uncertain Impact:
GAO-03-39:
GAO Highlights:
Highlights of GAO?03?0039, a report to the Chairman and Ranking Member
of
the Committee on Finance, U. S. Senate, and the Chairman and Ranking
Member
of the Committee on Ways and Means, House of Representatives.
December 2002:
Business Tax Incentives:
Incentives to Employ Workers with Disabilities Receive Limited Use and
Have an Uncertain Impact:
Why GAO Did This Study:
More than 17 million working-age individuals have a self-reported
disability that limits work. Their unemployment rate is also twice as
high as for those without a work disability, according to recent Census
data. In the Ticket to Work and Work Incentives Improvement Act of
1999,
the Congress mandated that GAO study and report on existing tax
incentives
to encourage businesses to employ and accommodate workers with
disabilities. This report provides information on (1) the current
usage of the tax incentives, (2) the incentives‘ ability to encourage
the hiring and retention of workers with disabilities, and (3) options
to enhance awareness and usage of the incentives.
What GAO Found:
Table: Business Tax Incentives to Encourage the Hiring, Retention, and
Accomodation of Workers with Disabilities:
[See PDF for image]
Source: GAO analysis of estimated usage from IRS‘s Statistics of Income
programs for 1999.
A very small proportion of corporate and individual taxpayers with a
business affiliation use the two tax credits. that are available to
encourage the hiring, retention, and accommodation of workers with
disabilities, according to IRS data. Taxpayers in the retail and
service
industries accounted for the largest share of the work opportunity
credits
reported in 1999, while providers of health care and social assistance
services accounted for the largest share of the disabled
access credits.
Information on the effectiveness of the incentives is limited and
inconclusive. Only the work opportunity credit has been studied
and these studies, along with those of a prior hiring credit, showed
that some employers revised their recruitment, hiring, and training
practices to increase the number of disadvantaged workers hired and
retained, but that credits have also have been claimed by employers
for workers they would have hired anyway. However, these studies have
not focused on workers with disabilities and data limitations preclude
conclusively determining their effectiveness for these workers.
To increase the awareness and usage of the tax incentives, business
representatives and experts on disability issues and tax incentives
suggested (1) improving government outreach and education efforts;
(2) increasing the maximum dollar amount of the incentives; and (3)
expanding the types of workers, businesses, and accommodations that
are eligible for the incentives. While these options may increase
incentive usage, it is uncertain whether the potential loss in tax
revenues would be offset by improvements in the employment of workers
with disabilities.
Commenting agencies generally concurred with GAO‘s findings.
The full report, including GAO‘s objectives, scope, methodology, and
analysis is available at www.gao.gov/cgi-bin/getrpt?GAO?03?0039. For
additional information about the report, contact Robert E. Robertson
(202) 512-7215 or robertsonr@gao.gov.
Contents:
Letter:
Results in Brief:
Background:
Small Proportion of Taxpayers Use Business Tax Credits:
Studies Provide Limited Information on the Effectiveness of the Tax
Incentives:
Options May Increase Tax Incentives‘ Usage and Cost, but Their Impact
on Workers with Disabilities Is Uncertain:
Agency Comments and Our Response:
Appendix I: Scope and Methods:
Appendix II: Federal Employment Programs and Incentives
Targeted to Workers with Disabilities:
Appendix III: Comments from the Social Security Administration:
Appendix IV: Comments from the Internal Revenue Service:
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Federal Employment Efforts Targeted to Employers to Hire,
Retain, and Accommodate Workers with Disabilities:
Table 2: Work Opportunity Credits Reported for 1999:
Table 3: Industry Distribution of Work Opportunity Credits Reported by
Corporations for 1999:
Table 4: Distribution, by Total Receipts, of Work Opportunity Credits
Reported by Corporations for 1999:
Table 5: Disabled Access Credits Reported for 1999:
Table 6: Federal Employment Programs and Incentives for Persons with
Disabilities:
Abbreviations:
ADA: Americans with Disabilities Act of 1990:
DI: Social Security Disability Insurance:
DOJ: Department of Justice:
DOL: Department of Labor:
EEOC: Equal Employment Opportunity Commission:
ETA: Employment Training Administration:
IRS: Internal Revenue Service:
ODEP: Office of Disability Employment Policy:
SOI: Statistics of Income:
SSA: Social Security Administration:
SSI: Supplemental Security Income:
TWWIIA: Ticket to Work and Work Incentives Improvement Act of 1999:
WOTC: Work Opportunity Tax Credit:
Letter:
December 11, 2002:
The Honorable Max S. Baucus
Chairman
Committee on Finance
United States Senate:
The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate:
The Honorable William M. Thomas
Chairman
Committee on Ways and Means
House of Representatives:
The Honorable Charles B. Rangel
Ranking Member
Committee on Ways and Means
House of Representatives:
Recent U.S. Census data show that more than 17 million working-age
individuals have a self-reported disability that limits work.[Footnote
1] These data also show that the unemployment rate for those who have a
work disability is more than twice as high as for those without a work
disability.[Footnote 2] Recognizing the many barriers to employment
faced by people with disabilities, the Congress and the administration
have had a long-term and continuing interest in ensuring that people
with disabilities fully participate in society and become self-
sufficient. Numerous federal programs and incentives support these
goals and are designed to encourage those with disabilities to prepare
for and participate in the workforce, including three tax incentives to
encourage businesses to hire, retain, or accommodate workers with
disabilities.
The federal tax incentives for businesses include not only a tax credit
to encourage the hiring of economically disadvantaged workers but also
a tax credit and a tax deduction to offset the expenses made to remove
barriers preventing a business from being accessible to individuals
with disabilities. The credits and deduction allow the following:
* The Work Opportunity Tax Credit (WOTC) Program allows businesses to
claim a tax credit when hiring and employing economically disadvantaged
workers, such as those who receive welfare and food stamp benefits and
those with disabilities who receive veterans or state-administered
vocational rehabilitation services or Supplemental Security Income
benefits.[Footnote 3]
* The disabled access credit allows small businesses to claim a maximum
credit of $5,000 for certain eligible expenditures to provide access to
individuals with disabilities when such accommodations are required to
comply with the Americans with Disabilities Act (ADA) of 1990.[Footnote
4]
* The architectural and transportation barrier removal deduction (the
barrier removal deduction) allows businesses to deduct up to $15,000
for the cost of making their facilities or transportation more
accessible to and usable by the elderly and individuals with a
disability.[Footnote 5]
The Ticket to Work and Work Incentives Improvement Act (TWWIIA) of 1999
directed GAO to study these incentives. This report provides
information on (1) the extent to which the tax credits have been used
and characteristics of those using the credits; (2) the ability of the
three tax incentives to encourage businesses to hire, retain, and
accommodate workers with disabilities; and (3) options that could
enhance businesses‘ awareness and use of these tax incentives to
encourage the employment and accommodation of workers with
disabilities.
To provide information on the usage of the tax credits, we obtained and
analyzed information from the Internal Revenue Service‘s (IRS)
Statistics of Income programs for corporations and for individuals for
tax year 1999, the latest year available. In analyzing the database for
individuals, we identified the individual tax returns with a business
affiliation, such as those with a sole proprietorship or interest in
real estate property because only individuals with a business
affiliation would be expected to use the credits. These databases
provide information on the tax credits reported, but IRS databases do
not have information on the barrier removal deduction.[Footnote 6] For
additional information on the usage and effect of the three incentives,
we reviewed studies of these incentives and related disability studies
on the employment and accommodation of workers with disabilities. We
also conducted interviews with six federal government agencies and
state agency officials from New York and California;[Footnote 7]
academic researchers from four major universities involved in
disability and rehabilitation research; representatives of three
leading business groups, including the U.S. Federation of Small
Businesses and the U.S. Chamber of Commerce; eight individual
businesses representing various industries; five disability
organizations representing individuals with physical and mental
disabilities; and two tax preparer groups. Furthermore, we discussed
possible changes to improve businesses‘ awareness and use of these
incentives with those knowledgeable about them. We conducted our work
between October 2001 and September 2002 in accordance with generally
accepted government auditing standards. For more details on our
approach, see appendix I.
Results in Brief:
A small proportion of corporate and individual taxpayers use the work
opportunity credit and the disabled access credit, and a large share of
the credits reported are from taxpayers with businesses within a few
industries. IRS data show that in 1999, about 1 out of 790 corporations
and 1 out of 3,450 individuals with a business affiliation[Footnote 8]
reported the work opportunity credit on their tax returns. Of the
estimated $254 million in work opportunity credits reported in 1999,
corporations accounted for $222 million, and corporations in the retail
and service industries accounted for the largest share of the corporate
credits.[Footnote 9] Similarly, about
1 out of 680 corporations and 1 out of 1,570 individuals with a
business affiliation reported the disabled access credit on their tax
returns for 1999. Of the $59 million in disabled access credits
reported in 1999, individual taxpayers with a business affiliation
accounted for an estimated
$51 million. Individual and corporate taxpayers associated with the
providers of health care and other social assistance services accounted
for the largest share of the disabled access credits. Although we can
provide information on the credits‘ use and characteristics of users,
we cannot determine the amount of the credits used to hire, retain, and
accommodate workers with disabilities. This information is not
available from tax data because tax returns provide only the total
amount of credits reported, and employers can also claim the work
opportunity credit for employing other types of workers and claim the
disabled access credit for expenditures made to accommodate customers
with disabilities. Moreover, information regarding the usage of the
barrier removal deduction for providing transportation or architectural
accommodations is not available in IRS databases.
Little information is available regarding the effectiveness of the
incentives on encouraging the hiring, retention, and accommodation of
workers with disabilities, and data limitations preclude conclusively
determining their effectiveness. Studies and information provided by
disability researchers and others knowledgeable about the incentives
indicated that some employers considered tax incentives in recruiting
and hiring disadvantaged workers. For example, the studies of the work
opportunity credit showed that some employers revised their
recruitment, hiring, and training practices to increase the number of
disadvantaged workers hired and retained, but did not specifically
address how this credit impacted the employment of workers with
disabilities. Studies of this credit and a prior and similar hiring
credit indicate, however, that employers could also be receiving
credits for employees they would have hired anyway. Unlike the work
opportunity credit, we did not find any specific studies of the
disabled access credit or the barrier removal deduction. However, other
research on disability employment issues and comments from interviewees
indicated that various factors, such as employers‘ lack of familiarity
with the incentives, may limit the usage of these business tax
incentives. While all these studies provide some information on
awareness, usage, or effectiveness of the incentives, limitations in
the studies‘ research methods and lack of data for further assessment
preclude conclusively determining the incentives‘ effectiveness.
Academic disability researchers, businesses, disability groups, and
other interested parties we interviewed proposed various options to
increase the awareness and usage of the incentives, including (1)
expanding and improving federal outreach through better coordination
and clarification of incentive requirements; (2) increasing the maximum
amount allowed to be claimed; and (3) expanding eligibility to cover
more workers with disabilities, businesses, and types of accommodation.
Those we interviewed noted that enhancing federal outreach efforts
could address employers‘ lack of familiarity with the incentives and
their concerns regarding their use of the incentives and the potential
costs of employing workers with disabilities. Some interviewees
suggested that the federal government clarify the requirements for
claiming the credits and improve coordination of efforts to provide
businesses with comprehensive information about the availability and
use of the incentives. Many of those interviewed also suggested
increasing the maximum amount allowed to be claimed and broadening the
eligibility requirements of the incentives such as allowing larger
businesses to use the disabled access credit. They noted that this
might stimulate usage and allow the incentives to benefit a broader
spectrum of businesses and workers with disabilities. While these
options could increase usage, they could also result in a reduction in
tax revenues. However, it is not known whether the costs of these
changes would be offset by improvement in the employment and access to
the workplace for those with disabilities because the impact of
incentives on the employment and accommodation of workers with
disabilities is uncertain.
In their comments to our report, agencies generally agreed with our
findings. The Department of Education, the Department of Labor, the
Internal Revenue Service within the Department of the Treasury, and the
Equal Employment Opportunity Commission provided us with comments of a
technical nature that we incorporated in the report as appropriate. The
Social Security Administration provided us with both general and
technical comments that we also incorporated as appropriate.
Background:
Workers with disabilities frequently face special challenges and
disincentives when entering or maintaining a place in the workforce. To
help those with disabilities overcome these challenges, the federal
government has designed a wide variety of programs and incentives. Most
of these federal efforts, as described in appendix II, are targeted to
persons with disabilities and can include job placement and training
programs from state-administered vocational rehabilitation agencies
and other service providers as well as extended medical and benefit
coverage for Social Security disability beneficiaries to encourage
their return to work. Recognizing that businesses may also face some
challenges when hiring, retaining, or accommodating individuals with
disabilities, the Congress designed some programs and incentives for
businesses. These include the three federal tax incentives reviewed in
this report as well as several other federal efforts, such as Office of
Disability Employment Policy‘s (ODEP) Business Leadership Network to
link the employers who have jobs to the local agencies who have workers
with disabilities to fill these jobs (see table 1).
Table 1: Federal Employment Efforts Targeted to Employers to Hire,
Retain, and Accommodate Workers with Disabilities:
Efforts: Business Leadership Network; (Labor, ODEP); Purpose: Network
of employers, state and local-level support organizations engaged in
activities to improve the employment of qualified candidates with
disabilities. Examples of these activities include sharing information
on disability employment issues and providing work opportunities for
job seekers with disabilities..
Efforts: Disability and Business Technical Assistance Centers;
(Education, National Institute on Disability and Rehabilitation
Research); Purpose: Assistance centers to provide information,
training, and technical assistance to employers, persons with
disabilities, and others with responsibilities under the ADA using 10
regional centers that work with local business and other networks..
Efforts: Employer Assistance Referral Network; (Labor, ODEP in
partnership with the Social Security Administration (SSA)); Purpose:
Referral service to assist employers with recruitment by connecting
them to agencies that have individuals with disabilities who are job
ready and by providing information on disability-related issues..
Efforts: Job Accommodation Network; (Labor, ODEP); Purpose: Network
providing information on employers‘ responsibilities under the ADA, job
accommodation, technical assistance, funding, education, and other
services related to the employment of individuals with disabilities..
Efforts: Project EMPLOY; (Labor, ODEP); Purpose: Resources, ongoing
support, training, and technical assistance to employers and others to
increase the recruitment, hiring, and retention of employees with
significant disabilities..
Efforts: Projects with Industry; (Education, Office of Special
Education and Rehabilitative Services); Purpose: Partnership with
private industry to create and expand job and career opportunities for
individuals with disabilities in the competitive labor market..
Efforts: Ticket to Hire; (SSA, Office of Employment Support Programs
(OESP) in partnership with Labor); Purpose: Free national referral
service for employers to hire qualified job candidates with
disabilities from SSA‘s Ticket to Work Program. See appendix II for
more information on the Ticket to Work Program to encourage individuals
with disabilities who are receiving disability benefits to return to
work..
Efforts: Workforce Recruitment Program; (Labor, ODEP); Purpose:
Recruitment program providing employers, by request, with a database of
pre-screened college students with disabilities to fill summer or
permanent hiring needs from more than 160 colleges and universities..
Source: Federal agency Web sites and other federal information sources.
[End of table]
The oldest of the three tax incentives, the barrier removal deduction,
was enacted in 1976 to encourage the more rapid modification of
business facilities and vehicles to overcome widespread barriers that
hampered the involvement of people with disabilities and the elderly in
economic, social, and cultural activities. Administered by IRS, it
allows taxpayers to claim expenses for the removal of eligible barriers
as a current deduction rather than as a capital expenditure that is
gradually deducted over the useful life of the asset. Internal Revenue
Code and corresponding regulations delineate the specific types of
architectural modifications that are eligible, such as providing an
accessible parking space or bathroom.[Footnote 10] In 1990, legislation
reduced the maximum amount of the barrier removal deduction from
$35,000 to $15,000 and created the disabled access credit. The disabled
access credit may be taken for expenditures made by eligible small
businesses to comply with the requirements of the Americans With
Disabilities Act of 1990. The credit defines small businesses as having
no more than (1) $1 million in gross receipts or (2) 30 full-time
employees. The credit is equal to 50 percent of eligible expenditures
made during the year, not including the first $250 and excluding costs
over $10,250, resulting in a maximum yearly credit of $5,000.[Footnote
11] Along with their responsibility to enforce the ADA, the Equal
Employment Opportunity Commission (EEOC) and the Department of Justice
(DOJ) provide information and promote the use of the disabled access
credit and other related tax incentives.
In addition to these incentives for accommodation, the work opportunity
credit provides businesses of any size with a hiring incentive for
employing economically disadvantaged individuals, including those with
disabilities. Established with the enactment of the Small Business Job
Protection Act of 1996 (P.L. 104-188), the Work Opportunity Tax Credit
Program provides employers with an incentive to provide jobs and
training to economically disadvantaged individuals, many of whom are
underskilled and undereducated. Of the nine eligibility categories of
disadvantaged workers,[Footnote 12] two categories specifically
include workers with disabilities-the vocational rehabilitation
referrals and Supplemental Security Income recipients.[Footnote 13] The
method for determining the amount of work opportunity credit to be
claimed has two tiers: (1) for newly hired eligible employees working
at least 400 hours, the credit is 40 percent of the first $6,000 in
wages paid during the first year of employment, for a maximum amount of
$2,400 for each employee and (2) for eligible workers with 120 to 399
hours on the job, a lesser credit rate of 25 percent is
allowed.[Footnote 14] No credit is available for eligible workers who
do not remain employed for at least 120 hours.
Federal and state agencies share responsibility for administering the
work opportunity credit. The IRS is responsible for the tax provisions
of the credit. The Department of Labor (DOL), through the Employment
and Training Administration (ETA), is responsible for overseeing the
administration and promotion of the program. DOL awards grants to
states to determine and certify workers‘ eligibility and to promote the
program. As part of the certification process, for each new person
hired, employers must submit two forms to the state employment agency
within 21 days of the hiring. For a fee, consultant businesses can
assist the hiring business with the program‘s administrative
requirements. Employers must also determine the appropriate amount of
credit to claim and maintain sufficient documentation to support their
claim.
Small Proportion of Taxpayers Use Business Tax Credits:
In 1999, a small proportion of corporate taxpayers[Footnote 15] or
individual taxpayers with a business affiliation[Footnote 16] reported
the work opportunity credit and the disabled access credit on their tax
returns. Whereas taxpayers in the retail and service industries
accounted for most of the dollar amount of work opportunity credits,
those providing health care and other social assistance services
accounted for most of the dollar amount of the disabled access credits.
Although we can provide information on the credits‘ use and
characteristics of users, we cannot determine the amount of credits
used to hire, retain, and accommodate workers with disabilities. This
information is not available from tax data because tax returns provide
only the total amount of credits reported, and employers can also claim
the work opportunity credit for employing other types of workers and
claim the disabled access credit for expenditures made to accommodate
customers with disabilities. Moreover, information is not readily
available regarding the usage of the barrier removal deduction for
providing transportation or architectural accommodations because IRS‘s
databases commingle this deduction with other deductions.[Footnote 17]
A Small Proportion of Taxpayers Use the Work Opportunity Credit:
In 1999, a small proportion of taxpayers reported the work opportunity
credit on their tax returns. In that year, about 1 out of 790
corporations[Footnote 18] and 1 out of 3,450 individuals with a
business affiliation[Footnote 19] reported this credit.[Footnote 20]
Corporations, excluding those that pass their credits through to
individual shareholders,[Footnote 21] accounted for an estimated 87
percent
($222 million of $254 million) of the total work opportunity credits
reported for 1999. These corporations also had an estimated average
credit of about $106,000, an amount more than 25 times greater than the
estimated average credit for individual taxpayers. Table 2 shows the
estimated amount of work opportunity credits reported for 1999.
Table 2: Work Opportunity Credits Reported for 1999:
Taxpayers: Corporations[C]; Total
amount[A]: $221,677,723; Sampling
error[B]: +/-$67,578,709; Average amount[A]: $106,265[D]; Sampling
error[B]: +/-$43,260.
Taxpayers: Individuals with a business affiliation; Total
amount[A]: 32,196,911; Sampling
error[B]: +/-8,602,357; Average amount[A]: 3,795[E]; Sampling
error[B]: +/-1,360.
Taxpayers: Total; Total
amount[A]: $253,874,634; Sampling
error[B]: +/-$68,034,341; Average amount[A]: $24,020f; Sampling
error[B]: +/-$8,988.
[A] Figures provide point estimates from sample data.
[B] The sampling errors provide the values from which 95 percent
confidence intervals can be computed for each estimate.
[C] Figures exclude the credits reported by S corporations, which pass
credits through to individual shareholders.
[D] This figure is based on an estimated 2,086 corporations, excluding
S corporations, reporting the credit.
[E] This figure is based on an estimated 8,483 individuals with a
business affiliation reporting the credit.
[F] This figure is based on an estimated 10,569 individuals with a
business affiliation and corporations, other than S corporations,
reporting the credit.
Source: GAO‘s analysis of IRS‘s Statistics of Income data.
[End of table]
Corporate credits reported were concentrated in a few
industries.[Footnote 22] Corporations in retail trade, hotel and food
services, and nonfinancial services accounted for an estimated $170
million,[Footnote 23] or about three-quarters of corporate work
opportunity credits in that year. Interviews with those knowledgeable
about this credit, including federal and state government officials,
told us that retail and service businesses participate in this program
because they have high employee turnover and need a large number of the
low-skilled workers that this program targets. Table 3 provides an
industry distribution of the estimated amount of work opportunity
credits reported by corporations for 1999.
Table 3: Industry Distribution of Work Opportunity Credits Reported by
Corporations for 1999:
Industry: Retail trade; Amount[A]: $102,451,974; Sampling error[B]: +/
-$62,908,341.
Industry: Hotel & food services; Amount[A]: 38,412,798; Sampling
error[B]: +/-15,292,680.
Industry: Nonfinancial services[C]; Amount[A]: 29,118,167; Sampling
error[B]: +/-11,779,669.
Industry: Manufacturing; Amount[A]: 19,296,238; Sampling error[B]: +/-
9,594,716.
Industry: Other[D]; Amount[A]: 32,398,545; Sampling error[B]: +/-
12,593,123.
Industry: Total; Amount[A]: $221,677,723; Sampling error[B]: +/-
$67,578,709.
[A] Figures provide point estimates from sample data, and exclude the
credits reported by S corporations, which pass credits through to
individual shareholders. Figures in the amount column do not sum to the
total because of rounding.
[B] The sampling errors provide the values from which 95 percent
confidence intervals can be computed for each estimate.
[C] Nonfinancial services include administrative, professional,
educational, and other service categories from the North American
Industry Classification System.
[D] Other industries include the remaining 12 industry categories, such
as agriculture and real estate from the North American Industry
Classification System. None of these industries accounted for more than
12.2 percent of the estimated dollar amount of credits reported.
Source: GAO‘s analysis of IRS‘s Statistics of Income data.
[End of table]
Furthermore, large corporations, those with $1 billion or more in total
receipts,[Footnote 24] accounted for most of the work opportunity
credits.[Footnote 25] These large corporations accounted for an
estimated $177 million, or about
80 percent of corporate credits for 1999. Interviews with those
knowledgeable about this credit, including federal and state government
officials, told us that these larger businesses are more likely to know
about and use this credit because their large hiring needs make it
financially beneficial to learn about and develop procedures to use the
credit. Data support this view, as the estimated average credit for
corporations with
$1 billion or more in total receipts was about $540,000.[Footnote 26]
Those interviewed also noted that larger corporations are more likely
to have the needed human resources to manage the administrative
requirements of this program or they can, for a fee, use consultants to
meet these requirements. Table 4 shows the estimated distribution, by
total receipts, of work opportunity credits reported by corporations
for 1999.
Table 4: Distribution, by Total Receipts, of Work Opportunity Credits
Reported by Corporations for 1999:
Total receipts: Less than $1 million; Amount[A]: [C]; Sampling
error[B]: [C].
Total receipts: $1 million to less than $10 million; Amount[A]:
$2,219,502; Sampling error[B]: +/-$1,060,706.
Total receipts: $10 million to less than $100 million; Amount[A]:
4,955,427; Sampling error[B]: +/-1,564,019.
Total receipts: $100 million to less than $1 billion; Amount[A]:
32,769,709; Sampling error[B]: +/-7,517,665.
Total receipts: $1 billion and greater; Amount[A]: 177,465,992;
Sampling error[B]: +/-66,848,655.
Total receipts: Total; Amount[A]: $221,677,723; Sampling error[B]: +/-
$67,578,709.
[A] Figures provide point estimates from sample data, and exclude the
credits reported by S corporations, which pass credits through to
individual shareholders. The total provides an estimate of all credits
reported by these corporations, including corporations with less than
$1 million in total receipts.
[B] The sampling errors provide the values from which 95 percent
confidence intervals can be computed for each estimate.
[C] A reliable estimate cannot be provided due to limited sample data.
Source: GAO‘s analysis of IRS‘s Statistics of Income data.
[End of table]
Although we can provide estimates on the amount reported for the work
opportunity credit, we cannot accurately determine the amount of
credits associated with hiring and employing workers with disabilities.
This amount cannot be precisely determined because tax returns only
include the total amount of the credit reported for all disadvantaged
workers eligible for the credit.
A Small Proportion of Taxpayers Use the Disabled Access Credit:
In 1999, a small proportion of taxpayers reported the disabled access
credit on their tax returns, and the dollar amount of credits reported
were concentrated in the health care and other social assistance
services. In that year, about 1 out of 686 corporations[Footnote 27]
and 1 out of 1,570 individuals with a business affiliation[Footnote 28]
reported this credit. Most of the disabled access credits were reported
by individual taxpayers with a business affiliation ($51 million of the
total $59 million reported). Furthermore, providers of health care and
other social assistance services[Footnote 29] accounted for an
estimated $31 million,[Footnote 30] or approximately half of all the
disabled access credits reported for 1999. However, it is not possible
to determine if these credits were for accommodations to benefit their
employees or clients because credits can be reported for either
purpose, and tax returns include only the total amount reported. It is
also not possible to determine the total number of taxpayers whose
businesses met the credit‘s small business eligibility requirements.
Table 5 shows the estimated amount of disabled access credits reported
for 1999.
Table 5: Disabled Access Credits Reported for 1999:
Taxpayers: Corporations[C]; Total
amount[A]: $8,044,789; Sampling
error[B]: +/-$4,707,616; Average amount[A]: $3,319d; Sampling
error[B]: +/-$695.
Taxpayers: Individuals with a business affiliation; Total
amount[A]: 51,374,913; Sampling
error[B]: +/-22,411,548; Average amount[A]: 2,753e; Sampling error[B]:
+/-643.
Taxpayers: Total; Total
amount[A]: $59,419,702; Sampling
error[B]: +/-$22,761,369; Average amount[A]: $2,818f; Sampling
error[B]: +/-$572.
[A] Figures provide point estimates from sample data.
[B] The sampling errors provide the values from which 95 percent
confidence intervals can be computed for each estimate.
[C] Figures exclude the credits reported by S corporations, which pass
credits through to individual shareholders.
[D] This figure is calculated based on an estimated 2,424 corporations,
other than S corporations, reporting the credit.
[E] This figure is calculated based on an estimated 18,662 individuals
with a business affiliation reporting the credit.
[F] This figure is calculated based on an estimated 21,086 individuals
with a business affiliation and corporations, excluding S corporations,
reporting the credit.
Source: GAO‘s analysis of IRS‘s Statistics of Income data.
[End of table]
Studies Provide Limited Information on the Effectiveness of the Tax
Incentives:
Little information is available regarding the effectiveness of the
incentives in encouraging employers to hire, retain, or accommodate
workers with disabilities. Of the three incentives, only the work
opportunity credit has been the subject of specific study. The two
studies we identified showed that some employers participating in the
program modified their recruitment, hiring, and training practices to
increase their hiring and retention of disadvantaged workers.[Footnote
31] However, one of these studies, as well as some studies of a similar
hiring credit that preceded the work opportunity credit, indicate that
such credits can reward employers for hiring disadvantaged workers they
would have hired anyway. We were unable to identify any studies that
directly examined the effectiveness of the disabled access credit and
barrier removal deduction. However, discussions with those
knowledgeable about these incentives, including government officials,
academic experts, and business representatives, and some general
studies of employers‘ perspectives on various disability employment
issues provided some additional information about the awareness, usage,
or effectiveness of the incentives. For example, they indicated that
businesses were frequently unaware of the incentives. While the
studies, surveys, and opinions provide some information about the
incentives‘ effectiveness, limitations in the research methods used,
and a lack of required data for further assessment preclude a
conclusive determination of how effective the three tax incentives are
in increasing the employment of workers with disabilities.
Studies Are Inconclusive about the Effectiveness of the Work
Opportunity Credit:
One of the WOTC studies, conducted by GAO, included a survey of
225 employers participating in the WOTC program in California and Texas
in 1999 and in 1997 or 1998 and found that most of the employers
participating in the WOTC program reported changing their recruitment,
hiring, or training practices to secure the credit and to better
prepare the credit-eligible new hires.[Footnote 32] Frequently,
reported changes to recruitment involved employers listing job openings
with a public agency or a partnership (48.8 percent), asking other
organizations to refer job applicants (42.6 percent), partnering with
agencies to identify applicants (33.8 percent) or to screen them (29.1
percent). These changes may have helped employers to increase their
pool of WOTC-eligible applicants and may thereby have increased their
chances of hiring these workers. About one-half of these employers also
reported training practices that may have increased the retention of
WOTC-eligible hires, such as providing mentors or work readiness
training and lengthening training times. On the other hand, the report
found that 57 percent of employers surveyed said that the possibility
that an applicant might make the company eligible for the tax credit
would not affect the applicant‘s chance of being hired.
The other study, commissioned by DOL, involved in-depth interviews with
a judgmental selection of 16 businesses that used the WOTC and the
Welfare-to-Work Tax Credit.[Footnote 33] Most, but not all, of these
employers indicated that these tax credits played little or no role in
their recruitment policies or that the individuals hired from either of
the credit‘s target groups would have been hired in the absence of the
tax credits. Even in those cases where the tax credit played a role in
the hiring decision, employers indicated that it was one among several
factors considered, such as the applicant‘s experience and skills.
Interviews with those knowledgeable about the work opportunity credit
provided some additional information about the effectiveness of this
credit. Some businesses and business groups we interviewed indicated
that the credit may motivate certain employers, such as large
businesses hiring many low-skilled workers, as well as some smaller
businesses, to hire disadvantaged workers because it can lower their
labor costs. However, some of the other businesses we interviewed told
us that the work opportunity credit had marginal, if any, impact on
their hiring, because they based their hiring decisions on other
factors, such as the skills and abilities of job applicants, or because
they viewed workers with disabilities as valuable employees and wanted
to have a workforce that reflected their customer base. Furthermore,
government officials and academic experts told us that the usage of
this hiring credit is limited by a lack of knowledge of the credit in
the business community, its low dollar value per worker hired, and
administrative requirements. They also noted that because eligibility
is limited to persons with disabilities receiving publicly funded
vocational rehabilitation or SSI benefits, a number of other people
with disabilities cannot participate. For example, individuals
receiving Social Security Disability Insurance or privately funded
vocational rehabilitation are not eligible to participate in the
program.
Studies of a similar tax incentive to encourage employers to hire
disadvantaged individuals also provide information about the potential
effectiveness of WOTC. Studies of the Targeted Jobs Tax Credit, the
precursor to WOTC, showed that it increased hiring and earnings of the
eligible workers; however, it also provided credits to employers for
hiring workers who would have been hired in the absence of these
incentives.[Footnote 34] These studies indicate that from 50 to 92
percent of the credits claimed were for workers employers would have
hired anyway. Studies of the targeted jobs tax credit also found that
employers rarely took the actions needed to claim the credit when
hiring individuals from eligible target groups, but that proactive
government outreach, such as referral of a disadvantaged client to a
business, could significantly increase employer participation in the
credit program.[Footnote 35] Although similar to its precursor, several
administrative changes were made to WOTC in an attempt to make it less
susceptible to providing credits to employers for workers they would
have hired anyway; however, the specific effect of these changes is not
known.[Footnote 36]
In addition, we found two national surveys examining various disability
employment issues that provide some information about employers‘
awareness and perceptions of the effectiveness of tax incentives in
general. One of the national surveys assessed employers‘ experiences
with workers with disabilities and found that only 15 percent of the
255 supervisors of workers with disabilities were aware of employer tax
incentives.[Footnote 37] The other national survey assessed employment
policies and found that private human resource managers viewed employer
tax incentives as the least effective means for reducing barriers to
employment for people with disabilities. By order of importance, the
more than 800 private human resource managers surveyed viewed visible
top-management commitment, staff training, mentoring, on-site
consultation and technical assistance, and short-term outside
assistance as more important than tax incentives in reducing employment
barriers for workers with disabilities.[Footnote 38]
Studies Do Not Examine the Effectiveness of the Disabled Access Credit
or Barrier Removal Deduction:
In contrast to the work opportunity credit, we were unable to identify
any studies that directly examined the effectiveness of the disabled
access credit and barrier removal deduction. However, some of those we
interviewed provided additional information on the perceived
effectiveness and use of the disabled access credit and barrier removal
deduction. Many of the business representatives and others we spoke
with were either unaware of these incentives or did not have an opinion
about their effectiveness. Of those with an opinion, the barrier
removal deduction was viewed by more individuals as having a positive
effect on the employment of workers with disabilities than was the
disabled access credit. While both incentives can help offset the cost
of accommodating workers with disabilities, they believed that the
barrier removal deduction was more widely used because larger
businesses, that are more likely to be aware of and willing to use tax
incentives, are eligible for this incentive. However, they also pointed
out that the use of the deduction was limited because it only allows
specific types of architectural and transportation modifications.
Implemented more than 20 years ago, the deduction cannot be applied to
the cost of addressing communication and electronic barriers in today‘s
modern workplace. Finally, in addition to the business size
restriction, they mentioned that the unfamiliarity with the disabled
access credit or not clearly understanding the expenditures that
qualify, could limit its usage.
Further Study of the Incentives‘ Effectiveness Precluded by Data
Limitations:
While the studies, surveys, and opinions from those knowledgeable about
the tax incentives provide some insight about their effectiveness,
limitations in the studies‘ research methods do not allow for directly
measuring the effectiveness of the incentives. For example, the WOTC
studies are limited in that they did not measure (1) the extent to
which employers would have made these hires in the absence of the
incentive; (2) the effect of the incentive on the retention and
salaries of WOTC hires compared to similar employees who were not
certified for the program; or (3) the effect of the incentive on SSI
recipients and vocational rehabilitation referrals, who are represented
in two eligibility categories for the work opportunity credit.
Existing data limitations preclude a conclusive determination of how
effective the three tax incentives are in increasing the employment of
workers with disabilities. The tax credits and the deduction create
incentives to increase the employment of workers with disabilities by
reducing the costs of employing these workers. To determine the
incentives‘ effect on the employment of these workers, information is
needed on the extent to which the incentives reduce employers‘ costs
(by decreasing their tax liability) and the extent to which these
reduced costs result in the employment of more workers with
disabilities. However, the national databases lack the data needed to
make this determination. As previously discussed, IRS databases do not
provide information on the barrier removal deduction. And, while these
databases provide information to estimate the usage of the disabled
access credit and the work opportunity credit, they do not provide
information on the amount of credits specifically associated with
workers with disabilities. In addition, although DOL has a national
database for the work opportunity tax credit program, this database
does not contain the information needed to accurately determine the
amount of credits associated with workers with disabilities.
Furthermore, economic literature does not provide a consensus on the
extent to which employers would alter their employment of workers with
disabilities in response to reductions in costs. Without this
information, a conclusive determination of the three incentives‘
effectiveness cannot be made.
In addition, surveying employers to determine the extent to which tax
incentives caused them to hire or accommodate employees with
disabilities may provide wide variations in the results depending upon
the research methods used and the quality of the data obtained. Studies
that specifically ask an employer whether a tax incentive caused them
to hire or accommodate an eligible individual can understate the effect
of the incentive, because employers may respond negatively if they do
not want to appear to discriminate in their employment practices or
because eligibility for the incentive would not be the only or even
major factor that employers consider when making such decisions. On the
other hand, asking a more general question, such as whether the
incentives had some influence on their employment practices, lacks
precision and may lead to overestimating the effect of the
incentives.[Footnote 39]
Options May Increase Tax Incentives‘ Usage and Cost, but Their Impact
on Workers with Disabilities Is Uncertain:
Business representatives and experts on disability issues and tax
incentives[Footnote 40] suggested options for increasing the usage and
effect of existing employer tax incentives. Many of those we
interviewed suggested increasing and improving government outreach and
education efforts, including improvements to government coordination
and clarification of tax incentive requirements. To further increase
the use and effect of the incentives, they also suggested increasing
the dollar value of the incentives and expanding the types of workers,
businesses, and accommodations that qualify a business to receive the
credits or deduction. Although changing the existing tax incentives
presents the potential for increased usage and a reduction in tax
revenues, such changes give no assurance of a substantial improvement
in the employment of workers with disabilities.
Expanded and Improved Outreach Suggested to Increase Incentive Usage:
Interviews with business representatives and experts in disability
issues indicate that two primary obstacles to increasing the use of the
tax incentives are a lack of familiarity with the incentives and
perceptions regarding the amount of effort required to qualify for
them. A number of those we interviewed suggested that better
coordination of government efforts, clarification of tax incentive
provisions, and increased outreach and education could help to improve
this situation.
The most frequently cited reason by business, academic, and disability
representatives for infrequent use of the incentives was that
businesses were not aware of them. Among the three tax incentives we
examined, most businesses and other organizations contacted were
familiar with the work opportunity credit; however, our contacts,
especially business representatives, were far less familiar with the
disabled access credit and the barrier removal deduction. Several of
those interviewed indicated that smaller businesses were less likely to
have staff who were familiar with the credits than larger businesses.
Furthermore, while larger businesses may have tax staff who are
familiar with the incentives, this knowledge is not always shared with
the hiring and other human resource managers. Without a general
awareness of these tax credits and deduction, employers cannot factor
them into the hiring, accommodation, or retention decisions, which may
be influenced by concerns about the potential costs of employing
individuals with disabilities, such as the possible costs for
accommodation or increased workers‘ compensation and medical insurance.
Another obstacle to the use of the incentives, according to many of
those we interviewed, was the perception that qualifying for the
incentives would require burdensome paperwork and other efforts. To
claim an incentive, businesses must gain knowledge of the eligibility
requirements, record the amount claimed on the appropriate tax form,
and maintain documentation to support their claim. The process may be
particularly burdensome for the work opportunity credit. To claim the
work opportunity credit, a business must also complete and provide two
forms within 21 days to the state employment agency, which certifies
the eligibility of a new hire for this program. According to some
familiar with this credit, these extra requirements can create a
burdensome paperwork process, especially for smaller businesses that
may lack sufficient resources to meet these requirements.[Footnote 41]
Even those businesses that have sufficient resources may not believe
that the credit is worth the time and effort needed to qualify for it,
according to several business representatives. For a fee, some
businesses use consultants to help reduce this burden. Furthermore, the
IRS has a demonstration project to enable businesses to electronically
file the certification forms and, as of April 2002, authorizes state
employment agencies to accept electronic submission of one of the
certification forms. Also, proposed legislation, recently passed by the
House, is intended to simplify the eligibility requirements for this
credit.[Footnote 42]
Given the general lack of familiarity with the disabled access credit
and the barrier removal deduction, views about the burdens created by
these incentives may be partially based on misperceptions among
businesses and others we interviewed. Unlike the work opportunity
credit, these incentives do not require any additional paperwork beyond
claiming the credit or deduction on IRS tax forms. Accordingly, one
vocational rehabilitation official told us that businesses‘ perceptions
about the burden of these incentives was a ’myth“ and not based on
their actual experiences. However, to some extent, the burden may be
related to determining eligibility for incentives, especially for the
disabled access credit. Academic experts told us that a lack of clarity
as to the type of businesses and expenditures that are eligible for the
disabled access credit makes it more difficult for them to use the
credit.
To increase familiarity and reduce possible misperceptions concerning
the incentives, representatives from businesses, academia, government
agencies, and disability organizations told us that there is a need for
better coordination in promoting the appropriate use of the incentives
and the advantages of hiring workers with disabilities. Most of those
interviewed believed that the federal government‘s efforts to inform
and educate taxpayers about these incentives should increase. A variety
of suggestions were offered on how the government should proceed with
these outreach efforts, and which agency should lead these efforts,
given the multiplicity of agencies with responsibility for encouraging
the employment of individuals with disabilities.
Some business, academic, and disability representatives we interviewed
believed that the Department of Labor, specifically the Office of
Disability Employment Policy, should have lead responsibility for
promoting these three incentives. According to one businessperson, ODEP
should take the lead because promoting the incentives is about
promoting business and hiring of competent workers. Some of those we
interviewed also viewed the participation of all federal, state, and
local agencies associated with the employment of people with
disabilities in outreach efforts as essential.
Some representatives also emphasized that federal agencies should
partner with the private sector in promoting the use of these
incentives. Federal outreach efforts were viewed as being more likely
to be effective if they utilized business organizations as well as
disability advocacy organizations, local agencies, and nonprofits to
promote these incentives. According to a representative of thousands of
small businesses, increased publicity through disability advocacy
groups and the tax preparer industry would make small businesses more
aware of the available incentives.
Outreach efforts by federal government agencies have been limited, but
they appear to be increasing. For example, IRS, DOL, DOJ, and EEOC use
their Web sites and toll-free numbers to give individuals access to
information on the incentives and have recently begun more active
outreach.[Footnote 43] In addition, DOJ officials told us that they had
been coordinating their outreach efforts with other agencies. In
coordination with the Small Business Administration, DOJ developed an
ADA guide for small businesses that addresses the tax incentives. DOJ
officials also told us that, for each year since 1994, they had
included a flier or an article with information on ADA requirements and
available tax incentives along with routine SSA and IRS mailings to
businesses and/or their accountants. SSA also has several efforts to
provide information about tax incentives to employers and individuals
with disabilities. Information about the incentives is available on its
Web site and through printed materials widely distributed to employers
and disability beneficiaries. As part of SSA‘s Ticket to Work Program,
the private employment service providers and public vocational
rehabilitation agencies offer employers information about their
eligibility for tax incentives and assistance in qualifying for these
credits, according to SSA.[Footnote 44] IRS has also recently made
efforts to reach out to taxpayers by including an article on the
disabled access credit in the IRS Reporter--an IRS publication for
taxpayers and tax preparers.
Furthermore, as part of the President‘s New Freedom Initiative to
ensure enforcement of the ADA,[Footnote 45] DOJ is mailing to selected
small businesses a packet of information on tax incentives to encourage
the accommodation of customers and employees with disabilities. This
outreach effort to the business community was undertaken in response to
a general belief that many small businesses were not aware of the tax
incentives available to them, particularly the disabled access credit.
Other efforts under the President‘s initiative include a series of
workshops initiated by the EEOC to provide information to small
businesses about the benefits of hiring people with disabilities,
including information about the tax incentives. The EEOC is partnering
with DOJ to conduct some of the workshops. In addition, EEOC recently
released a guide for businesses that includes information about the tax
incentives entitled The Americans with Disabilities Act: A Primer for
Small Businesses.
Improved coordination and outreach were also suggested to help resolve
a reported concern about the appropriate use of the disabled access
credit. According to some academic experts, unclear guidance, including
a lack of IRS implementing regulations for the disabled access credit,
can inhibit its use. It was explained that some companies may not use
the incentives, in part, because they are wary of being audited by IRS
and later being found to have used the credit incorrectly. According to
a representative of a large tax preparer group, the disabled access
credit‘s provisions are unclear and complicated. For example, IRS
guidelines do not clearly state whether a business that is not required
by title I of the ADA to accommodate an employee can use the credit for
these expenditures.
Raising the Maximum Dollar Amount of Incentives Suggested to Increase
Usage:
Many of the organizations that we contacted told us that increasing the
maximum dollar amount allowed to be claimed for the incentives might
increase usage by attracting the attention of businesses and changing
perceptions that the administrative cost of using the incentives will
outweigh their benefits. Some academic and business representatives
said that they believed that the incentives would need to increase--
with some suggesting increases of 25 to 200 percent--to capture the
attention of businesses or reduce their concerns about the cost of
accommodating workers with disabilities. Although the cost of
accommodating a worker with a disability is often less than $500,
sometimes these costs can exceed the amount allowed under the tax
incentives.[Footnote 46] For example, some government, disability, and
academic representatives told us that the cost of some accommodations,
such as those for information technology to accommodate a person that
is visually impaired, can sometimes far exceed the maximum $5,000 per
year for each eligible business allowed under the disabled access
credit. In addition, companies that employ a large number of disabled
workers may also incur substantial accommodation costs. For example,
one of the large companies we interviewed reported spending more than
$1 million on accommodations in the last year, although this official
believed that the talent they received more than compensated for these
costs.
Expanding Eligibility for the Tax Incentives Suggested to Benefit a
Broader Spectrum of Businesses and Workers with Disabilities:
Most of the organizations interviewed favored an expansion of the
eligibility requirements of the tax incentives as a means to increase
their usage. According to interviewees, use of the incentives is
limited by the following restrictions:
* the type of workers eligible for the work opportunity credit,
* the size of businesses for the disabled access credit, and:
* the type of accommodations for the barrier removal deduction.
Most interviewees favored expanding coverage of the work opportunity
credit to include a broader spectrum of workers with disabilities, as
eligibility requirements currently limit eligibility for workers with
disabilities to certain vocational rehabilitation referrals or
Supplemental Security Income recipients. Many suggested including
Social Security Disability Insurance recipients as an additional
category of eligible workers for this program even though some of these
individuals may not be economically disadvantaged--generally a
criterion for inclusion in this program.[Footnote 47] Inclusion of this
group would complement SSA‘s Ticket to Work program to encourage
individuals with disabilities who are receiving disability benefits to
return to work. Pending legislation, passed by the House, includes a
provision to expand eligibility to those Social Security Disability
Insurance recipients who are working with employment networks and have
individualized work plans under the Ticket to Work program.
Many business representatives would also like to see the disabled
access credit expanded to make more businesses eligible for the credit.
The tax code limits the usage of this credit to businesses that are
making accommodations in compliance with the ADA and have either
(1) 30 employees or less or (2) $1.0 million or less in gross receipts.
Many believed that the restriction on employees should be expanded to
include businesses with over 30 employees. In addition, academic
experts pointed out that by tying the use of the credit to compliance
with the ADA that many of the smallest firms, that is those with fewer
than 15 employees, may not be able to use this credit when
accommodating an employee. While the ADA generally requires small
businesses to remove architectural barriers, it does not require
businesses with fewer than 15 employees to make such modifications for
their employees. According to representatives of a business
organization representing many small companies, ensuring that the
incentives are available to small business to accommodate employees is
particularly important because these businesses account for most of the
growth in jobs. According to the Small Business Administration, small
firms constituted about three-quarters of the employment growth in the
1990s.[Footnote 48]
The vast majority of business, academic, government, and disability
representatives interviewed told us that the barrier removal deduction
should be expanded to include accommodations to address electronic and
communications barriers in the workplace. Although new technologies can
open up opportunities for people with disabilities to more actively
participate in the workforce, some new technologies can also act as
barriers for those with sensory and other types of impairments and can
prevent them from fully participating in the modern workplace. For
example, an individual with a visual impairment may not be able to use
a computer without a screen reader or other special software to
interpret images on the monitor.
Suggested Options May Increase Government Costs, but the Effect on
Workers with Disabilities is Uncertain:
Many of those we interviewed believed that various changes could
increase the usage of the incentives to improve the employment of
workers with disabilities; however, tax revenue reductions are a likely
result from such changes. Tax revenues would be expected to decrease if
the dollar value of the incentives was increased and/or coverage was
expanded to include more people with disabilities, businesses, or types
of accommodation. Potential reductions in tax revenues could be offset
to some extent by an increase in taxable income and reduced government
benefits for workers with disabilities if changing the incentives were
to improve the employment of workers with disabilities. However,
because of the lack of data on the effectiveness of the incentives,
potential tax revenue losses would have to be absorbed without knowing
the effect of changes to the incentives on the employment of people
with disabilities.
Increasing the dollar amount allowed for these incentives may also
increase the potential for misuse and thereby reduce tax revenues.
There are already indications that at least one of the incentives, the
disabled access credit, has been targeted for fraudulent activity. In
April 2002, the Treasury Inspector General for Tax Administration
testified that, in tax year 1999, thousands of taxpayers may have
inappropriately claimed the disabled access credit, including taxpayers
who did not indicate any interest in or ownership of a business on
their tax return--a key requirement for receiving the credit.[Footnote
49] Increasing the value of this and other tax incentives may make them
even more attractive to those who may misuse them.
Another point to consider with increasing the maximum dollar amount for
the incentives is that this change would allow those who are already
claiming the incentive to claim an additional amount without increasing
the employment or accommodation of workers with disabilities. For
example, businesses that already claim the work opportunity credit,
could, if the credit were increased, simply claim more for each
eligible worker without making any changes in the overall number of
workers they hired or the level of accommodation provided. In addition,
because the disabled access credit is tied to compliance with the ADA,
increasing the maximum dollar amount for the incentive may not increase
the level of accommodation provided, in that employers are already
required by law to provide reasonable accommodations. Finally,
increasing outreach, eligibility, or the maximum dollar amount allowed
to be claimed for the incentives may increase their usage; however, it
is not known whether the costs of such changes would be offset by
improvements in the employment and accommodation of workers with
disabilities.
Agency Comments and Our Response:
We provided a draft of this report to the Department of Education, the
Department of Justice, the Department of Labor, the Internal Revenue
Service within the Department of the Treasury, the Equal Employment
Opportunity Commission, and the Social Security Administration. They
generally concurred with our findings.
The comments from most of the agencies were limited to technical
comments and were incorporated, as appropriate, into the report. In
addition to technical comments, SSA provided us with several general
comments. In response to one of these comments, we included additional
information about workers‘ eligibility for the work opportunity credit.
SSA also commented that disability groups believe that the current
structure of WOTC may be causing a revolving door effect in which
employers hire individuals for low-pay and unskilled work and retain
them only as long as the employers receive the tax credit. However, in
our discussions with a wide range of disability groups, none indicated
that the program created a revolving door for WOTC-eligible hires.
Moreover, a recent GAO review of the credit found that employers did
not appear to be dismissing employees to increase their tax
credit.[Footnote 50] In addition, SSA‘s general comments indicated that
more attention should be directed at measuring the employers‘ awareness
and understanding of the three tax incentives, the results of which
could, among other things, improve outreach and education. Although
further study may provide some additional information on changes to
outreach that could increase the incentives‘ usage, existing data
limitations would still preclude determining the effectiveness of these
changes on the employment of people with disabilities. The full texts
of SSA‘s and IRS‘s comments are included as appendices III and IV.
We are sending copies of this report to the Department of Education,
the Department of Justice, the Department of Labor, the Internal
Revenue Service within the Department of the Treasury, the Equal
Employment Opportunity Commission, the Social Security Administration,
appropriate congressional committees, and other interested parties. We
will also make copies available to others on request. In addition, the
report will be available at no charge on GAO‘s Web site at http://
www.gao.gov.
If you or your staffs have any questions concerning this report, please
call me or Carol Dawn Petersen, Assistant Director, at (202) 512-7215.
Staff acknowledgments are listed in appendix V.
Robert E. Robertson
Director, Education, Workforce,
and Income Security Issues:
Signed by Robert E. Robertson:
[End of section]
Appendix I: Scope and Methods:
To obtain information on the usage of the two tax credits, we analyzed
tax data from the Internal Revenue Service‘s (IRS) Statistics of Income
Programs for 1999, the most recent year that data were available.
Statistics compiled for the Statistics of Income (SOI) programs are
generally based on stratified probability samples of income tax returns
or other forms filed with the IRS.
The two SOI programs used were the 1999 Corporation Income Tax Returns
Program and the 1999 Individual Income Tax Return Program. The
Corporation program includes information on active, for-profit
corporations, including information on S corporations. S corporations
report items of income, deduction, loss, and credit on their corporate
tax returns, but pass through such items to individual shareholders.
Throughout the report, we provided information on the number and
characteristics of corporations reporting the credits. However, we
excluded the amount of credits associated with S corporations because
these credits can be passed through to individual shareholders and
reported on individual tax returns. For individual tax returns, we
differentiated between individuals with and without a business
affiliation, as the credits are for businesses that hire disadvantaged
employees or accommodate employees or customers with disabilities.
Individual taxpayers with a business affiliation are those whose
individual tax returns show they had a sole proprietorship,
partnership, farm, or interest in a S corporation, rental property,
estate, or trust.
Because estimates from the SOI programs are based on a sample of
taxpayer data, they are subject to sampling errors. These sampling
errors measure the extent to which the point estimates may vary from
the actual values in the population of taxpayers. Each of our estimates
are surrounded by a 95-percent confidence interval, which indicates
that we can be 95 percent confident that the interval surrounding the
estimate includes the actual population value. In some cases, the small
number of taxpayers reporting the tax credits in the SOI sample
resulted in large estimate intervals.[Footnote 51]
To assess existing information on the tax incentives‘ effectiveness as
well as to identify any changes that may increase businesses‘ awareness
of future usage, we performed extensive literature, legislative
history, and Internet searches and reviewed available studies. We also
interviewed various groups interested in these issues using interview
guides, with a standard set of questions for each group interviewed. We
conducted interviews with federal agency officials in the Departments
of Education, Labor, Justice, and the Treasury and in the Social
Security Administration and the Equal Employment Opportunity Commission
and with state agency officials from New York and California.[Footnote
52] Additional interviews were conducted with selected businesses,
business groups, tax preparer groups, disability organizations, and
academic experts who were knowledgeable about these incentives and
disability issues in general. Among those we interviewed were (1)
individuals from a variety of businesses, such as large businesses in
the retail and computer industries and small to medium sized businesses
in the consulting and engineering service industries; (2) business
groups, including the U.S. Federation of Small Businesses, the
Washington Business Group on Health, and the U.S. Chamber of Commerce;
(3) disability organizations, including the American Association of
People with Disabilities, the American Foundation for the Blind, the
Paralyzed Veterans of America, the World Institute on Disability, and
the Consortium of Citizens with Disabilities; and (4) academic experts
at the Law, Health Policy, and Disability Center at the University of
Iowa, the Rural Institute on Disabilities at the University of Montana,
the Rehabilitation Research and Training Center at the Virginia
Commonwealth University, and the Department of Policy Analysis and
Management at Cornell University.
[End of section]
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities:
The federal government provides many programs and incentives
exclusively to persons with disabilities to enable them to enter or
remain in the workforce. Persons with disabilities can take advantage
of more than 100 federal programs. Many of these programs, such as
those providing accessible housing, transportation, and independent
living services, can help those with disabilities to become or remain
employed.[Footnote 53] However, only a relatively small proportion of
these federal programs are specifically focused on providing employment
services exclusively to persons with disabilities.
The Department of Education, the Department of Labor, the Department of
Health and Human Services, and the Social Security Administration (SSA)
administer most of the employment programs exclusively targeted to
persons with disabilities, with services delivered by numerous public
and private agencies at the state and local level.[Footnote 54] The
Department of Education has a long standing involvement in, and
numerous programs for, the rehabilitation and training of persons with
disabilities. Its Vocational Rehabilitation Program is the largest
federal effort for improving the employment of people with
disabilities. Recently, the Department of Labor undertook two
initiatives to improve the employment of persons with disabilities: (1)
a series of projects under the Office of Disability Employment Policy,
some of which are targeted to employers, as previously described and
(2) Work Incentives Grants to give persons with disabilities better
access to the one-stop centers where many of the federally funded
employment and training programs are to be provided, as required by the
Workforce Investment Act passed in 1998.
Other recent legislation, the Ticket to Work and Work Incentives
Improvement (TWWIIA) Act of 1999 created four new federal programs for
persons with disabilities, as well as incentives to encourage persons
with disabilities to work. Two of these programs, under the Department
of Health and Human Services, are designed to provide services needed
by workers with disabilities to become employed and to help those with
severe impairments to maintain their employment. Two others, under SSA,
are intended to build the infrastructure for the new ticket program to
expand the availability of employment services for disability
beneficiaries. This legislation also provides states with options for
expanding medical coverage to working individuals with disabilities and
adds to the work incentives available to persons who are receiving
Supplemental Security Income (SSI) and Social Security Disability
Insurance (DI), such as extending healthcare coverage an additional 4-
1/2 years to DI recipients who have returned to work. In addition to
these incentives, the government also provides a tax incentive to
individuals who incur work-related accommodation expenses. The federal
employment programs and incentives exclusively available to persons
with disabilities are summarized in table 6.
Table 6: Federal Employment Programs and Incentives for Persons with
Disabilities:
Programs and incentives: Department of Education Programs.
Programs and incentives: Rehabilitation Services--Vocational
Rehabilitation Grants to States; Objective: To provide grants to assist
states in operating statewide comprehensive programs, as part of a
statewide workforce investment system, designed to assess, plan,
develop, and provide vocational rehabilitation services for individuals
with disabilities.; Target beneficiary: Individuals with
disabilities..
Programs and incentives: Rehabilitation Services--Service Projects;
Objective: To provide discretionary grant funds to state vocational
rehabilitation agencies and public nonprofit organizations for special
projects and demonstrations that promise to expand or otherwise improve
services to individuals with disabilities, over and above those
provided by the basic rehabilitation services administered by states.;
Target beneficiary: Individuals with disabilities and individuals with
’significant“ disabilities as defined in the Rehabilitation Act of
1973..
Programs and incentives: Rehabilitation Services Demonstration and
Training-Special Demonstration Programs; Objective: To provide
financial assistance to projects and demonstrations for expanding and
improving services authorized under the Rehabilitation Act of 1973,
including related research and evaluation activities.; Target
beneficiary: Individuals with disabilities..
Programs and incentives: Supported Employment Services for Individuals
With Significant Disabilities; Objective: To provide grants to help
states develop and implement collaborative programs with appropriate
entities to provide supported employment services, such as intensive
on-the-job training, to enable individuals with the most significant
disabilities to achieve supported employment.; Target beneficiary:
Individuals with significant disabilities..
Programs and incentives: Helen Keller National Center Program;
Objective: To provide direct services for deaf and blind individuals to
enhance their potential for employment and to live independently in
their home communities.; Target beneficiary: Individuals who are deaf
and blind, their families, and service providers..
Programs and incentives: Randolph-Sheppard Program; Objective: To
provide blind persons with remunerative employment, enlarge their
economic opportunities, and encourage their self-support through the
operation of vending facilities in federal buildings.; Target
beneficiary: Blind individuals..
Programs and incentives: Rehabilitation Services--American Indians
with Disabilities; Objective: Provide vocational rehabilitation
services to American Indians with disabilities that reside on or near
federal or state reservations, to prepare them for employment.; Target
beneficiary: American Indians with disabilities who reside on or near
federal or state reservations..
Programs and incentives: Projects with Industry; Objective: To create
and expand job and career opportunities for individuals with
disabilities in the competitive labor market by partnering with private
industry.; Target beneficiary: Individuals with disabilities..
Programs and incentives: Department of Labor Programs; Objective:
[Empty]; Target beneficiary: [Empty].
Programs and incentives: Employment Programs for People with
Disabilities; Objective: To bring a heightened and permanent long-term
focus to the goal of increasing employment of persons with
disabilities, by providing leadership, development policies, and
initiatives and by awarding grants that further the elimination of
barriers to the training and employment of people with disabilities.
(Note: See table 1 for several of the programs targeted to employers
that are funded by this program.); Target beneficiary: People with
disabilities and the organizations that serve them..
Programs and incentives: Work Incentive Grants; Objective: To support
the development of the one-stop system infrastructure with the
objective of achieving model, seamless, and comprehensive services for
people with disabilities, thereby increasing their employment,
retention, earning capacity, and occupational skill attainment.; Target
beneficiary: Individuals with disabilities eligible for employment and
training services under the Workforce Investment Act..
Programs and incentives: Department of Health and Human Services
Programs and Incentives; Objective: [Empty]; Target beneficiary:
[Empty].
Programs and incentives: Demonstration to Maintain Independence and
Employment (Ticket-to-Work Demonstrations); Objective: To support
states‘ efforts to provide working individuals with the necessary
benefits and services required for these individuals to manage the
progression of their condition and remain employed. The benefits
provided should be equivalent to those provided by Medicaid to the
categorically needy and to workers that have physical or mental
impairments that, without medical assistance, will result in a
disability.; Target beneficiary: Workers with potentially severe
disabilities that are
(1) at least 16 but less than 65 years of age, (2) have specific
physical or mental impairments identified by the state that are
reasonably expected to lead to blindness or disability, and (3) are
employed..
Programs and incentives: Medicaid Infrastructure Grants to Support the
Competitive Employment of People with Disabilities; Objective: To
support state efforts to enhance employment options for persons with
disabilities by building the Medicaid infrastructure. Funding may be
used to develop a Medicaid buy-in, increase availability of Personal
Assistance Services, plan a demonstration to Maintain the Independence
and Employment Program, or for state-to-state technical assistance.;
Target beneficiary: Employed persons with disabilities between 16 and
65 years old in either of two circumstances: (1) those who meet income,
asset, and resource standards established by the state and (2) those
who cease to be eligible for medical assistance because of medical
improvements determined at the time of a regularly scheduled disability
review, but who also continue to have a severe, medically determinable
impairment..
Programs and incentives: Expanded Availability of Healthcare Services
for Workers with Disabilities; Objective: To enable individuals with
disabilities to remain in or enter the workforce, TWWIIA allows (1) the
option to states to provide Medicaid benefits to more people with
disabilities, (2) extension of premium-free Medicare coverage to DI
recipients who return to work, and (3) coverage protection for some
Medigap policy holders.; Target beneficiary: With the passage of
TWWIIA, states can offer Medicaid to (1) working individuals between 16
and 64 years of age who, except for their income and resource levels,
are eligible to receive SSI and (2) employed individuals with a
medically improved disability who lost Medicaid eligibility because
they no longer met the SSI definition of disability..
Programs and incentives: Social Security Administration Programs and
Incentives; Objective: [Empty]; Target beneficiary: [Empty].
Programs and incentives: Social Security--Benefits Planning,
Assistance, and Outreach Program; Objective: To provide grants to
qualified organizations to (1) offer benefit planning and assistance to
disability beneficiaries and to provide outreach to those potentially
eligible for work incentive programs and (2) disseminate accurate
information to beneficiaries with disabilities about incentive programs
and related issues.; Target beneficiary: DI and SSI beneficiaries with
disabilities and their families..
Programs and incentives: Social Security State Grants for Work
Incentives Assistance to Disabled Beneficiaries; Objective: To provide
grants to state protection and advocacy systems that provide (1)
information and advice about obtaining vocational rehabilitation and
employment services or (2) advocacy or other services that
beneficiaries with disabilities may need to secure or regain
employment.; Target beneficiary: DI and SSI beneficiaries with
disabilities who want to work..
Programs and incentives: Work Incentives for Supplemental Security
Income (SSI) and Social Security Disability Insurance (DI); Objective:
To encourage and enable those receiving federal disability benefits to
become part of the workforce, SSA provides incentives to allow SSI and
DI beneficiaries to extend their medical benefits and disability
payments when returning to work and to make it easier to have benefits
reinstated if work is no longer possible. TWWIIA expands upon the
incentives by (1) providing tickets to SSI and DI recipients to receive
training and employment assistance; (2) extending premium-free Medicare
coverage for a longer time period; (3) providing temporary benefits for
those who left the disability program, but are unable to continue
working; and (4) not reviewing the eligibility of DI or SSI beneficiary
using a ticket to work.; Target beneficiary: Individuals receiving SSI
or DI benefit payments who return to work..
Programs and incentives: Department of the Treasury; Objective:
[Empty]; Target beneficiary: [Empty].
Programs and incentives: Tax deduction for Impairment-Related Work
Expenses; Objective: To permit workers with disabilities to claim
impairment-related work expenses (such as the cost for attendant care
at work) as deductions to their gross income. These deductions, unlike
other business expenses, are not limited to 2 percent of adjusted gross
income.; Target beneficiary: Individuals with a disability or
impairment that functionally limits their employment or substantially
limits one or more major life activities..
Programs and incentives: Department of Veterans‘ Affairs
Program; Objective: [Empty]; Target beneficiary: [Empty].
Programs and incentives: Vocational Rehabilitation for Disabled
Veterans; Objective: To provide all services and assistance necessary
to enable veterans with service-connected disabilities to prepare for,
obtain, or maintain suitable employment, and if work is not possible,
to provide services and assistance to help the veteran achieve maximum
independence in daily living.; Target beneficiary: Veterans with a
service-connected disability and veterans with disabilities who have a
serious employment handicap..
[A] Federal programs and initiatives that do not exclusively and
directly provide employment related services to persons with
disabilities have not been included. For example, not included is the
Javits-Wagner-O‘Day Act that requires federal agencies to give
purchasing priority to the products and services of sheltered workshops
for individuals who are blind or have other significant disabilities.
[B] For more information on the work incentives and the Ticket to Work
Program, see Social Security Administration, Office of Employment
Support, 2002 Red Book on Employment Support: A Summary Guide to
Employment Support Available to People with Disabilities Under the
Social Security Disability Insurance and Supplemental Security Income
Programs, SSA Publication No. 64-030. (Baltimore, Md., 2002).
[C] For more information on tax adjustments, such as the medical
expense deduction, that may be of particular interest for those with a
disability or who care for someone who has a disability, see Department
of Treasury, Internal Revenue Services, Tax Highlights for Persons with
Disabilities, IRS Publication No. 907. (Washington, D.C., 2000).
Source: The Catalog of Federal Domestic Assistance Programs and federal
agency Web sites and other federal information sources.
[End of table]
[End of section]
Appendix III: Comments from the Social Security Administration:
SOCIAL SECURITY:
The Commissioner:
November 6, 2002:
Mr. Robert E. Robertson:
Director, Education, Workforce and Income Security Issues:
U.S. General Accounting Office Washington, D.C. 20548:
Dear Mr. Robertson:
Thank you for the opportunity to review and comment on the draft
report, ’Business Tax Incentives: Incentives To Employ Workers with
Disabilities Receive Limited Use and Have an Uncertain Impact“ (GAO-03-
39). Our comments on the report are enclosed. If you have any
questions, please have your staff contact Trudy Williams at (410) 965-
0380.
Sincerely,
Jo Anne B. Barnhart:
Signed by Jo Anne B. Barnhart:
Enclosures: (2):
SOCIAL SECURITY ADMINISTRATIONBALTIMORE MD 21235-0001:
COMMENTS OF THE SOCIAL SECURITY ADMINISTRATION (SSA) ON THE GENERAL
ACCOUNTING OFFICE (GAO) DRAFT REPORT, ’BUSINESS TAX INCENTIVES:
INCENTIVES TO EMPLOY WORKERS WITH DISABILITIES RECEIVE LIMITED USE AND
HAVE AN UNCERTAIN IMPACT“ (GAO-03-39):
The use and effectiveness of tax incentives to hire and retain workers
with disabilities is an important topic in the overall arena of
providing employment opportunities for individuals with disabilities.
We think it would be helpful to readers of the report if it provided a
more detailed description of each of the business tax incentives and
identified categories for eligible individuals for whom an employer
could claim tax credits (and those who are not eligible).For instance,
the Work Opportunity Tax Credit is available for Supplemental Security
Income recipients, persons participating in a vocational rehabilitation
program, and other disadvantaged groups (e.g., former prisoners).
However, Social Security Disability Insurance beneficiaries are not an
eligible category; neither are other categories of impaired persons.
Identifying all eligible groups may provide the reader with a better
picture of which disabled groups are included and which are not, as
well as how large the pool of eligible disabled persons is relative to
those who are eligible for other reasons.
SSA believes that additional attention should be directed at measuring
employers‘ awareness and understanding of the principal tax incentives.
The results of these efforts could help in conducting more effective
outreach and education, documenting employers‘ concerns and
misperceptions over the administrative burdens of qualifying for the
incentives, and developing additional or modified incentives that would
address the needs of employers.
The report includes the results of some interviews that indicate that
the incentives are underutilized, and it makes some suggestions for
improving the incentives. However, it could be strengthened by adding a
discussion of the concern of the major advocacy groups for the disabled
that the current structure of the Work Opportunity Tax Credit may be
causing a revolving door effect in which employers hire individuals for
low-pay, unskilled work and retain them only as long as they receive
the tax credit. When the tax credit is no longer payable, the employee
is let go and replaced with another eligible person. Not having
obtained any skills, the disabled person is left to find another low-
pay, unskilled job. While this is clearly anecdotal, the GAO might want
to look more carefully at this concern and consider recommending a
longer time horizon for the tax credit in the place of proposing a
larger maximum amount for the incentive.
Technical Comments:
Beginning on page 23, the report cites examples of the outreach and
education efforts of Federal agencies, including use of the Internet,
to provide information about tax incentives. SSA has been very active
in this arena through several initiatives:
*SSA provides information to employers about tax incentives,
qualifications and application procedures on its SSA Online web site
and includes this information in printed materials that are widely
distributed to beneficiaries and employers.
SSA is partnering with the Department of Labor (DOL), Office of
Disability Employment Policy, on Project EARN, which offers information
and support to employers who are looking to hire qualified persons with
disabilities. The two agencies are also partnering on Ticket to Hire,
which is a free national referral service for employers to hire
qualified job candidates with disabilities from the Ticket to Work
Program.
Through the Ticket to Work Program, private sector employment service
providers and public vocational rehabilitation agencies offer employers
information about their eligibility for tax incentives and assistance
in qualifying for these credits.
We suggest including a description of Ticket to Hire, described above,
to Table 1: ’Federal Employment Efforts Targeted to Employers to Hire,
Retain and Accommodate Workers with Disabilities“ on page 7.
Additional Comments:
SSA is presently developing research projects that focus on innovative
employment practices and methods for intervening with appropriate
benefits and support services earlier in the disability determination
process. As part of this effort, we are examining other domestic
programs, such as Welfare to Work and the practices of foreign
disability programs as sources of potential new economic incentives for
employers which would provide better measures of their effectiveness in
stimulating employment and furthering retention of workers with
disabilities.
[End of section]
Appendix IV: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C.
20224:
COMMISSIONER:
November 26, 2002:
Mr. Robert E. Robertson Director:
Education, Workforce, and Income Security Issues United States General
Accounting Office Washington, D.C. 20548:
Dear Mr. Robertson:
I reviewed your draft report titled ’Business Tax Incentives:
Incentives to Employ Workers With Disabilities Receive Limited Use and
Have Uncertain Impact“ (GAO-03-39). I agree with your report that
businesses have not made full use of the tax incentives available to
them. But, as your report indicates, we have taken steps to publicize
these tax incentives. Tax professionals and employers can access
information on available tax credits through our website, the Digital
Daily. The website provides forms and publications, answers to
frequently asked questions, and information on the misuse of these
credits.
I also would like to clarify a few areas. Your report is based on data
for 1999. The Work Opportunity Tax Credit (WOTC) expired on June 30,
1999. From July to December 1999, the Internal Revenue Code specified
that the credit was unavailable to individuals hired after June 30,
1999. Public Law Number 106-170, dated:
December 17, 1999, retroactively reinstated the credit. The
reinstatement may have affected the total usage of the credit during
1999 and the extent to which the credit operated as a hiring incentive
during that year.
I would also like to comment on two sentences in the report:
*On page 8, the description of the first tier of the credit refers to
the amount as being ’40 percent of the first $6,000 in wages paid....“
This statement would be incorrect if an employee took more than one
year to earn his or her first $6,000. You should revise the description
to read ’40 percent of the first $6,000 in wages paid for the first
year of employment....“:
*On page 22, the following sentence could be misleading: ’The IRS is
working on a project to enable businesses to electronically file the
certification forms.“ The current project is a demonstration project.
However, in April 2002, the IRS released Announcement 2002-44,
authorizing state employment agencies to accept electronic submissions
of Form 8850. Each state employment agency can accept electronic
submissions at any time in accordance with the provisions of that
announcement without waiting for completion of the demonstration
project.
Several footnotes also need to be clarified:
*On page 3, footnote 7 - ’allotments of WOTC funds“ should be revised
to clearly indicate that it refers to payments administered by the
Department of Labor to states rather than tax credits to employers.
*On page 25, footnote 42 - the footnote should be replaced with the
following: ’The Internal Revenue Code states that small businesses can
claim the disabled access credit for expenditures incurred to comply
with the ADA. The statutory language appears to be clear that a small
business already in compliance with the ADA would have little basis for
claiming the credit.“:
If you have any questions, please contact me or Joseph R. Brimacombe,
Deputy Director, Compliance Policy, Small Business/Self Employed
Division, at (202) 283-2180.
Sincerely,
Bob Wenzel:
Acting Commissioner:
Signed by Bob Wenzel:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Robert E. Robertson, (202) 512-7215
Carol Dawn Petersen, (202) 512-7215:
Staff Acknowledgments:
In addition to those named above, the following individuals made
significant contributions to this report: Jeffrey Arkin, Julie DeVault,
Patrick DiBattista, Patricia Elston, Corinna Nicolaou, Robert Tomco,
Education, Workforce, and Income Security Issues: Wendy Ahmed, Luanne
Moy, Ed Nannenhorn, James Ungvarsky, Anne Stevens, Applied Research and
Methods: Shirley Jones and Behn Miller, General Counsel; and Thomas
Bloom and Samuel Scrutchins, Tax Administration and Justice Issues.
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FOOTNOTES
[1] These data are based on information from the U.S. Census Bureau,
March 2001 Current Population Survey report entitled Disability Labor
Force Status--Work Disability Status of Civilians 16 to 74 Years Old,
by Educational Attainment and Sex: 2001. In this survey, those
respondents reporting that they or a member of their household has a
health problem or disability that prevents them from working or that
limits the kind or amount of work that they can do are designated as
having a work disability.
[2] We designated individuals between the ages of 16 to 64 to be of a
’working age.“ Furthermore, reported data on the employment rate for
individuals with a work disability is about 50 percent less than for
those without a work disability.
[3] Individuals with disabilities who receive benefits from the Social
Security Disability Insurance Program are not specifically designated
as eligible for this program. However, some may be eligible for the
program if they meet the qualifications for other eligibility
categories, such as recipients of Temporary Assistance for Needy
Families.
[4] Under the ADA, a person is considered to have a ’disability“ if he
or she has a physical or mental impairment that substantially limits
one or more major life activities (such as walking or hearing), has a
record of such impairment, or is regarded as having such impairment.
The ADA requires businesses to make reasonable accommodations for
otherwise qualified employees unless the accommodation would impose an
undue hardship on the business. With regard to the public, the ADA
similarly prohibits discrimination on the basis of disability and
generally requires businesses to make reasonable modifications to
ensure access to their goods, services, and facilities by patrons with
a disability.
[5] Small businesses may use both the disabled access credit and the
barrier removal deduction together, if the expenses incurred are
eligible under both incentives. For example, if a business spent
$12,000 for access adaptations, it would qualify for a $5,000 tax
credit and a $7,000 tax deduction.
[6] To determine the extent of the usage of the deduction would require
obtaining and reviewing the actual tax returns.
[7] Among all the states, California and New York had two of the
largest WOTC programs and individually accounted for the two largest
allotments of WOTC administrative funds from the Department of Labor in
fiscal year 2001. Together, they accounted for $3.7 million or
approximately 18.3 percent of the total administrative budget for the
program.
[8] Individual taxpayers with a business affiliation are those whose
individual tax returns show they had a sole proprietorship,
partnership, farm, or interest in rental property, an estate, a trust
or an S corporation. S corporations are entities designed to pass
through their tax credits to individual shareholders to be reported on
individual tax returns.
[9] The estimated $222 million reported by corporations excludes the
dollar amount reported by S corporations, which pass through their
credits to individual shareholders. The total amount of credits
reported by non-S corporations and individuals with a business
affiliation, $254 million, is based on the dollar value reported for
this credit by taxpayers on their tax returns, as indicated in IRS‘s
Statistics of Income programs.
[10] The standards for eligible architectural modifications set forth
in Internal Revenue guidance for the barrier removal deduction were
adapted from the ’American National Standard Specifications for Making
Buildings and Facilities Accessible to, and Usable by, the Physically
Handicapped“ (1971) from the American National Standards Institute.
[11] General business credits, including the disabled access credit,
are subject to an overall dollar limitation and cannot exceed net
income tax minus the greater of (1) the tentative minimum tax or (2) 25
percent of the net regular tax liability above $25,000. Excess amounts
of the disabled access credit are not refundable, but can be claimed by
carrying excess amounts from a tax year back 1 year and forward 20
years.
[12] The nine categories of WOTC-eligible workers include (1)
individuals in families currently or previously receiving welfare
benefits under the Temporary Assistance for Needy Families program or
its precursor, the Aid to Families with Dependent Children program; (2)
veterans in families currently or previously receiving assistance under
a food stamp program; (3) food stamp recipients--aged 18 through 24
years--in families currently or previously receiving assistance under a
food stamp program; (4) youth--aged 18 through 24 years--who live
within an empowerment zone or enterprise community; (5) youth--aged 16
and 17 years--who live within an empowerment zone or enterprise
community and are hired for summer employment only; (6) ex-felons in
low-income families;
(7) individuals currently or previously receiving Supplemental Security
Income;
(8) individuals currently or previously receiving vocational
rehabilitation services; and
(9) workers for businesses located in the New York Liberty Zone or for
businesses that relocated from that zone to elsewhere within New York
due to physical destruction or damage of their workplace caused by the
terrorist attack on September 11, 2001.
[13] WOTC eligibility requirements for workers with disabilities do not
currently include Social Security Disability Insurance recipients or
other individuals with impairments who are not Supplemental Security
Income recipients or vocational rehabilitation referrals. However, a
provision included in HR 4070, which was passed by the House, and as
amended by the Senate, would have expanded WOTC eligibility to those
Social Security Disability Insurance recipients who are working with
employment networks and have individualized work plans under the Ticket
to Work Program. The 107th Congress adjourned without taking further
action on this bill.
[14] The work opportunity credit is subject to the overall dollar
limitation of general business credits. Excess amounts are not
refundable, but can be carried back 1 year or forward
20 years.
[15] The number of corporate taxpayers reporting the credits include
for-profit corporations, such as S corporations that report tax
information to the IRS, but are designed to pass their income, losses,
and credits through to individual shareholders for reporting on their
individual tax returns.
[16] Individual taxpayers with a business affiliation are those whose
individual tax returns show they had a sole proprietorship,
partnership, farm, or interest in a S corporation, rental property,
estate, or trust.
[17] Although not available from IRS databases, individual and
corporate tax returns might contain additional information on reported
deductions that might allow for an estimation of the number of
taxpayers and dollar amount reported for the barrier removal deduction.
However, identifying, obtaining, and reviewing a sufficient number of
tax returns would be a substantial undertaking.
[18] We estimated that 1 out of 791 corporations reported the work
opportunity credit based on an estimated 6,243 corporations (+/-a
sampling error of 1,845 corporations) out of a total of 4,935,904
corporations filing tax returns for 1999.
[19] We estimated that 1 out of 3,455 individuals with a business
affiliation reported the work opportunity credit based on an estimated
8,483 individuals (+/-a sampling error of
2,868 individuals) out of a total of 29,307,023 individuals with a
business affiliation filing tax returns for 1999.
[20] The expiration and reinstatement of this credit may have affected
its usage and the extent to which it operated as a hiring incentive
during 1999, according to IRS. The credit expired on June 30, 1999.
From July to December of this year, the Internal Revenue Code specified
that the credit was unavailable to individuals hired after June 30,
1999. The Congress retroactively reinstated the credit under Public Law
Number 106-170 on December 17, 1999.
[21] To avoid overestimating the total amount of credits reported by
corporate and individual taxpayers with a business affiliation, the
credits reported by S corporations have been excluded.
[22] Corporate credits reported exclude those reported by S
corporations.
[23] Corporations in retail trade, hotel and food services, and
nonfinancial services accounted for an estimated $169,982,939 (+/-a
sampling error of $65,756,603) of work opportunity credits for 1999.
[24] IRS‘s computation of a corporation‘s total receipts varies by type
of tax return filed and whether a net gain or loss was reported. The
computation generally includes the amount of a corporation‘s total
income, cost of goods sold, and tax exempt interest and subtracts the
amount of taxable income or dividends from foreign-related
corporations.
[25] Credits reported exclude those reported by S corporations.
[26] Corporations with $1 billion or more in total receipts had an
estimated average work opportunity credit of $544,374 (+/-a sampling
error of $196,775) for 1999.
[27] We estimated that 1 out of 686 corporations reported the disabled
access credit based on an estimated 7,199 corporations (+/-a sampling
error of 2,530 corporations) out of a total of 4,935,904 corporations
filing tax returns for 1999.
[28] We estimated that 1 out of 1,570 individuals with a business
affiliation reported the disabled access credit based on an estimated
18,662 individuals (+/-a sampling error of 6,598 individuals) out of a
total of 29,307,023 individuals with a business affiliation filing tax
returns for 1999.
[29] Social assistance services include services such as vocational
rehabilitation, child day care, and community housing.
[30] Providers of health care and other social assistance services
(corporations and individuals) accounted for an estimated $31,349,695
(+/-a sampling error of $10,126,660) of disabled access credits for
1999. Credits reported exclude those reported by S corporations.
[31] We also reviewed a 1997 study of the work opportunity credit
commissioned by DOL, but did not include its findings because it
focused on the administration of the credit and did not provide
information on the credit‘s effect on the hiring of disadvantaged
workers.
[32] U.S. General Accounting Office, Work Opportunity Tax Credit:
Employers Do Not Appear to Dismiss Employees to Increase Tax Credits,
GAO-01-329 (Washington, D.C.: Mar. 13, 2001), 15-18, 23-24, 33 and 35.
[33] Westat and Decision Information Resources, Inc., Employers‘ Use
and Assessment of the WOTC and Welfare-To-Work Tax Credits Program, a
report prepared at the request of the Department of Labor, March 2001.
The welfare-to-work tax credit is another hiring incentive that was
established in 1997 and provides up to $8,500 in credits to employers
for each person hired who is a long-term welfare recipient. The study
included businesses that varied in size, type, and location, such as a
large urban transportation company and a small suburban beauty supply
retailer and many of these businesses had at least one WOTC-certified
new hire in 1999 that was either an SSI recipient or a vocational
rehabilitation referral.
[34] For a summary of studies of wage subsidy programs, see Timothy J.
Bartik, Jobs for the Poor: Can Labor Demand Policies Help? (New York:
Russell Sage Foundation, 2001), Chap. 8. For example, these studies
included the U.S. General Accounting Office, Targeted Jobs Tax Credit:
Employer Actions to Recruit, Hire, and Retain Eligible Workers Vary,
GAO/HRD-91-33 (Washington, D.C.: Feb. 20, 1991) and the U.S. Department
of Labor, Office of Inspector General, Targeted Jobs Tax Credit:
Employment Inducement or Employer Windfall? (Washington, D.C.,1994).
[35] Bartik, Jobs for the Poor, 228-229.
[36] The WOTC program was designed to mitigate some shortcomings that
had been identified with it precursor, the Targeted Job Tax Credit
program, including problems with employer windfalls for hiring
employees that they would have hired anyway and too many credit-
eligible employees leaving their jobs before receiving much work
experience. To increase the likelihood that the credit would be
considered in the hiring decision, under WOTC, the employer and job
seeker are now required to fill out a form to help establish the
eligibility of the applicant for WOTC on or before the date of hire. In
addition, the minimum employment period for receiving the higher rate
of credit was lengthened. Furthermore, some eligibility target groups
were reformulated with the intention of focusing more narrowly on those
who truly needed a hiring credit.
[37] D. Unger, ’A National Study of Employers‘ Experiences with Workers
with Disabilities and Their Knowledge and Utilization of
Accommodations“ (unpublished data, 2001).
[38] S. Bruyere, Disability Employment Policies and Practices in
Private and Federal Sector Organizations, (Ithaca, N.Y.: Cornell
University, School of Industrial and Labor Relations Extension
Division, Program on Employment and Disability, 2000). This survey
included a random sample of the membership of the Society for Human
Resource Management, the entire membership of Washington Business Group
on Health, and human resource and equal employment opportunity
personnel in the federal agencies, totaling over 800 private and over
400 federal agency representatives.
[39] Bartik, Jobs for the Poor, 228-229.
[40] A wide variety of groups were interviewed, including businesses
and their representatives, academic experts, disability groups, tax
preparers, and government representatives. For a more detailed
description of interviewees, see appendix I.
[41] Several interviewees also raised concerns over the fact that the
work opportunity credit is temporary and not permanent. The
interviewees noted that businesses‘ interest in using the credit may be
limited when its long-term future is uncertain.
[42] Also incorporated into this legislation, H.R. 4626, is a provision
to combine the work opportunity credit and the Welfare-to-Work credit
to simplify the use of these credits for employers.
[43] As WOTC is jointly administered at the federal and state level,
state WOTC coordinators and other state agencies are also responsible
for marketing this credit. According to a state official, these
activities have included providing information on this incentive at
employer seminars and job fairs, but government officials acknowledged
that marketing for this incentive could be improved.
[44] SSA also has on-going research efforts to identify potential new
economic incentives for employers to stimulate the employment and
retention of workers with disabilities.
[45] In February 2001, President George W. Bush announced his New
Freedom Initiative to help Americans with disabilities participate more
fully in their communities and country, including proposals to increase
their ability to integrate into the workforce.
[46] Information from DOL‘s Job Accommodation Network indicates that
carrying out its suggested accommodations cost less than $500 in 71
percent of all cases. (See Job Accommodation Network Publications,
’Facts About Job Accommodations,“ http://www.jan.wvu.edu/media/
JANFacts.html.)
[47] The work opportunity credit was originally designed to help
economically disadvantaged individuals from certain groups that
consistently have had a particularly high unemployment rate. However,
it does not specifically require that all individuals of these groups
be economically disadvantaged. For example, youth from empowerment
zones and enterprise communities do not have to demonstrate that they
are economically disadvantaged to be eligible for WOTC. Also, a recent
amendment to WOTC has created a new group of eligible workers who may
or may not be economically disadvantaged. This group includes workers
for businesses located in the New York Liberty Zone or for businesses
that relocated from that zone to elsewhere within New York due to
physical destruction or damage of their workplace caused by the
terrorist attack on September 11, 2001.
[48] U.S. Small Business Administration, Office of Advocacy, Small
Business Economic Indicators 2000, (Washington, D.C. 2001).
[49] In an April 11, 2002, hearing before the Senate Committee on
Finance, the Treasury Inspector General for Tax Administration
identified a fraudulent tax scheme in which promoters selling
expensive, coin-operated telephone equipment with volume controls
targeted elderly taxpayers to convince them that purchasing this
equipment would enable the taxpayer to claim the disabled access
credit.
[50] GAO-01-329, 2-3.
[51] In addition to the reported sampling errors, there are other
sources of error that may affect the reliability of SOI data. These
nonsampling errors include taxpayer reporting errors and
inconsistencies, processing errors, and the effects of any early cutoff
of sampling.
[52] Among all the states, California and New York had two of the
largest WOTC programs and individually accounted for the two largest
allotments of administrative funds from the Department of Labor in
fiscal year 2001. Together, they accounted for $3.7 million, or
approximately 18.3 percent of the total administrative budget for the
program.
[53] For the broad range of federal programs to assist people with
disabilities, see U.S. General Accounting Office, People with
Disabilities: Federal Programs Could Work Together More Efficiently to
Promote Employment, GAO/HEHS-96-126 (Washington, D.C.: Sept. 3, 1996).
[54] Federal agencies are also joining together to create special
initiatives to encourage the employment of persons with disabilities.
Under the State Partnership Systems Change Initiative, the Social
Security Administration and the Department of Education‘s
Rehabilitation Services Administration funded demonstration projects
in 17 states to provide innovative projects, services, and supports to
increase job opportunities and to assist adults with disabilities in
their efforts to enter the work force. Other federal agencies, such as
the Department of Health and Human Services have joined in the support
of these projects. SSA also has a Youth Continuing Disability
Initiative in two states to provide early intervention and information
to assist youths in making a successful transition from school to work.
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