The Work Opportunity and Welfare-to-Work Tax Credits

Brief

The Work Opportunity and Welfare-to-Work Tax Credits

October 7, 2005

Abstract

The Work Opportunity Tax Credit (WOTC) offers subsidies to firms that hire disadvantaged workers, including certain welfare recipients, food stamp recipients, people with disabilities, and others. The similar Welfare-to-Work (WtW) tax credit offers firms potentially larger subsidies for hiring long-term welfare recipients. The tax credits from these programs totaled nearly $500 million in 2003, according to the Office of Management and Budget. This brief provides policy background on employer subsidies, discusses participation in the WOTC and WtW, surveys current evidence on the effects of the tax credits on labor market outcomes, and discusses the costs and benefits of the programs.

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